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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



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FORM 10-K/A

Amendment No. 1



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(Mark One)

|x | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ------------------------------------------------------------------------------------



For the fiscal year ended: October 2, 2004



or



| ̈ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ----------------------------------------------------------------------------------------



For the transition period from  to
.



Commission file number: 0-18741



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LESLIES POOLMART, INC.

(Exact name of registrant as specified in its charter)



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|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|Delaware                                                       |  | 95-4620298                          
|(State or other jurisdiction of incorporation or organization) |  | (I.R.S. Employer Identification No.)



3925 E. Broadway
Road, Suite 100

Phoenix, Arizona 85040

(Address of principal executive offices)



Registrants telephone number, including area code: (602) 366-3999



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Securities registered pursuant to Section 12(b) of the Act: None



Securities registered pursuant to section 12(g) of the
Act: None.



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Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No ̈



Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not
contained herein, and will not be contained, to the best of registrants knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this form 10-K.  x



Indicate by check mark whether the registrant
is an accelerated filer (as defined in Rule 12b-2 of the Act)    Yes ̈No  x



APPLICABLE ONLY TO CORPORATE
REGISTRANTS:



The Number of Shares of Common Stock outstanding as of
December 15, 2004 was 7,369,502.



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##### Table of Contents

LESLIES POOLMART, INC.

TABLE OF CONTENTS



For the Fiscal Year Ended October 2, 2004



|         |  |                                                                                       |  |     
|-------- |  | ------------------------------------------------------------------------------------- |  | ----
|         |  |                                                                                       |  | Page
|PART I  
|Item 1.  |  | Business                                                                              |  | 3   
|Item 2.  |  | Properties                                                                            |  | 7   
|Item 3.  |  | Legal Proceedings                                                                     |  | 8   
|Item 4.  |  | Submission of Matters to a Vote of Security Holders                                   |  | 8   
|        
|PART II 
|         |  |                                                                                      
|Item 5.  |  | Market for Registrants Common Equity and Related Stockholder Matters                 |  | 8   
|Item 6.  |  | Selected Financial Data                                                               |  | 9   
|Item 7.  |  | Managements Discussion and Analysis of Financial Condition and Results of Operations |  | 11  
|Item 7a. |  | Quantitative and Qualitative Disclosures about Market Risk                            |  | 19  
|Item 8.  |  | Financial Statements and Supplemental Data                                            |  | 20  
|Item 9.  |  | Changes in and Disagreements with Accountants On Accounting and Financial Disclosure  |  | 39  
|Item 9a. |  | Controls and Procedures                                                               |  | 39  
|        
|PART III
|         |  |                                                                                      
|Item 10. |  | Directors and Executive Officers of the Registrant                                    |  | 40  
|Item 11. |  | Executive Compensation                                                                |  | 42  
|Item 12. |  | Principal Shareholders and Stock Ownership of Management                              |  | 46  
|Item 13. |  | Certain Relationships and Related Transactions                                        |  | 47  
|Item 14. |  | Principal Accountant Fees and Services                                                |  | 48  
|        
|PART IV 
|         |  |                                                                                      
|Item 15. |  | Exhibits, Financial Statement Schedules and Reports on Form 8-K                       |  | 49  



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PART I



ITEM 1. BUSINESS



Leslies
Poolmart, Inc. (Leslies or the Company) is the leading national specialty retailer of swimming pool supplies and related products. These products primarily consist of regularly purchased, non-discretionary pool
maintenance items such as chemicals, equipment, cleaning accessories and parts, and also include fun, safety and fitness-oriented recreational items. The Company currently markets its products under the trade name Leslies Swimming Pool
Supplies through 474 company-owned retail stores in 36 states and through mail order catalogs sent to selected pool owners nationwide. The Company was incorporated as a Delaware corporation in 1997.



The Company provides its customers a comprehensive selection of high quality
products, competitive every day low prices and superior customer service through knowledgeable and responsive sales personnel who offer a high level of technical assistance at convenient store locations. The typical Leslies store contains
3,863 square feet of space, is located either in a strip center or on a freestanding site in an area of heavy retail activity, and draws its customers primarily from an approximately three-mile trade area. The Company maintains a proprietary mailing
list of approximately 5.8 million addresses, including approximately 80% of the residential in-ground pools in the U.S. This highly focused list of target customers is central to the Companys direct mail marketing efforts, which support both
its retail store and mail order operations.



Swimming Pool Supply Industry



Regardless of the type or size of a swimming pool, there
are numerous ongoing maintenance and repair requirements associated with pool ownership. In order to keep a pool safe and sanitized, chemical treatment is required to maintain proper chemical balance, particularly in response to variables such as
pool usage, precipitation and temperature. A swimming pool is chemically balanced when the disinfectant, pH, alkalinity, hardness and dissolved solids are at the desired levels. The majority of swimming pool owners use chlorine to disinfect their
pools. When the pool is chemically balanced, problems such as algae, mineral and salt saturation, corrosive water, staining, eye irritation and strong chlorine smell are less likely to occur. A regular testing and maintenance routine will result in
a stable and more easily maintained pool. However, regardless of how well appropriate levels of chlorine are maintained, shocking is periodically required to break up the contaminants which invariably build up in the pool water. To
accomplish this, the pool owner can either superchlorinate the pool or use a nonchlorinated oxidizing compound. The maintenance of proper chemical balance and the related upkeep and repair of swimming pool equipment, such as pumps, heaters, and
filters, create a non-discretionary demand for pool chemicals and other swimming pool supplies and services. Further, non-usage considerations such as a pools appearance and the overall look of a household and yard create an ongoing demand for
these maintenance related supplies. In addition, pool usage creates demand for discretionary items such as floats, games and accessories.



The swimming pool supply industry can be divided into four major segments by pool type: residential in-ground swimming pools, residential above-ground
swimming pools (usually 12 to 24 feet in diameter), commercial swimming pools and spas or hot tubs. The Companys historical strategy was to focus primarily on the residential in-ground pool owner. In recent years, the Company has expanded its
activities to more aggressively address the commercial and above-ground markets as well. In the residential categories, the Company markets its products primarily to the do-it-yourself market as opposed to those pool owners who hire pool
servicers. Through its commercial business, products and services are offered to all non-residential pool installers as well as to pool service companies which maintain either residential or commercial pools.



Seasonality



The Companys business exhibits substantial seasonality, which the Company believes is typical of the swimming pool
supply industry. In general, sales and net income are highest during the quarters ended June and September which represent the peak months of swimming pool use. Sales are substantially lower during the quarters ended December and March when the
Company typically incurs net losses. The principal external factor affecting the Companys business is weather. Hot weather and the higher frequency of pool usage in such weather create a need for more pool chemicals and supplies. Unseasonably
early or late warming trends can increase or decrease the length of the pool season. In addition, unseasonably cool weather and/or extraordinary amounts of rainfall in the peak season will tend to decrease swimming pool use. The likelihood that
unusual weather patterns will severely impact the Companys results is lessened by the



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geographical diversification of the Companys store locations. The Company also expects that its quarterly results of operations will fluctuate
depending on the timing and amount of revenue contributed by new stores and, to a lesser degree, the timing of costs associated with the opening of new stores. The Company attempts to open its new stores primarily in the quarter ending March in
order to position itself for the following peak season.



Products



Leslies offers its customers a comprehensive
selection of products necessary to satisfy their swimming pool supply needs. During 2004, the Company stocked approximately 1,700 items in each store, with more than 30,000 additional items available through its other channels of distribution and
special order processes. In 2004, approximately 420 items were displayed in the Companys residential mail order catalogs and 1,800 items were in the commercial catalog, although special order procedures make nearly all Leslies products
available to mail order customers as well.



The Companys
major product categories are pool chemicals; major equipment; cleaning and testing equipment; pool covers, reels, and liners; above-ground pools in a limited number of stores; and recreational items (which include swimming pool floats, games,
lounges, masks, fins, snorkels and other impulse items).



Non-discretionary and regularly consumed products such as pool chemicals, major equipment and parts represented approximately 82% of total sales in fiscal 2004. The Companys non-discretionary products typically have long shelf lives
and are generally not prone to either obsolescence or shrinkage which could occur from changing technology or consumer buying patterns.



The Company believes that product quality and availability are key attributes considered by consumers when shopping for pool supplies and that the
Companys ability to provide a high quality, in-stock product offering is fundamental to its concept of value leadership. In addition to third-party brand names, Leslies carries a broad selection of products under the Leslies brand
name. The Company believes that the Leslies brand name is one of the three most recognized brands in pool supplies and represents an image of quality to consumers. In fiscal 2004, Leslies brand name products accounted for approximately
37% of the Companys total sales.



Channels of Distribution



Retail Store Operations. At the end of fiscal
2004, Leslies marketed its products through 474 retail stores in 36 states under the trade name Leslies Swimming Pool Supplies. California represents its single largest concentration of stores with 109, while 83 stores are located
in Texas, and 96 stores are in the northeast/mid-Atlantic area. Leslies retail stores are located in areas with high concentrations of swimming pools and typically are approximately 3,900 square feet in size. In addition to the store manager,
the typical Leslies store employs one assistant manager, who is generally a full-time employee. Additionally, Leslies makes frequent use of part-time and temporary employees to support its full-time employees during peak seasons. During
2004, the Company had 31 district managers, each of whom was responsible for approximately 14 stores.



Mail Order Catalog. Leslies mail order catalogs provide an extension of its service philosophies and products to those areas not currently
served by a retail store and allow the scope of the Companys business to be truly nationwide. The Company believes that its mail order catalogs build awareness of the Leslies name, provide it with buying efficiencies and, when coupled
with information from its retail stores, are instrumental in determining site selection for new stores.



Customer Service



Due
to the complicated nature of pool chemistry and equipment maintenance and consistent with its philosophy of being a full service swimming pool supply retailer, Leslies offers a high level of technical assistance to support its customers. The
Company considers its training of store personnel to be an integral part of its service philosophy. Leslies extensive training program for all full-time and part-time store employees includes courses in water chemistry, water testing, trouble
shooting on equipment, equipment sizing and parts replacement.



A significant number of Leslies stores are supported by the Leslies Service Department, which offers poolside equipment installation and repair, leak detection and repair, and seasonal opening and closing services. The Service
Department utilizes both Company employees and subcontractors to perform these services.



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Marketing



The majority of the Companys marketing is done on a direct mail basis through its proprietary mailing list of approximately 5.7 million addresses at
which, primarily, residential pools are located. Leslies has found that its ability to mail directly to this highly focused group is an effective and efficient way to conduct its marketing activities to both retail store and mail order
customers. The Company constantly updates its address list through proprietary research techniques and in-store customer sign-ups.



Addresses on the Companys proprietary list that are located within a specified service area of a retail store receive circulars once or twice per
month from late March or early April through September or, selectively, through October. As a regular part of Leslies promotional activities, each mailer highlights specific items which are intended to increase store traffic, and reinforces to
the customer the advantages of shopping at Leslies, which include everyday low pricing, a high level of customer service, and a broad selection of high quality products. Addresses outside the Companys store service areas, and recently
active mail order customers within those service areas, receive the Companys mail order catalogs. The Company utilizes local print media when it enters a new market, and does so regularly in connection with its above-ground pool sales markets.
New store openings typically involve additional advertising in the first two to three months of operation.



Purchasing



Leslies management believes that because it is one of the largest purchasers of swimming pool supplies for retail sales in the United States, the Company is able to obtain very favorable pricing on its purchases from outside
suppliers. Nearly all raw materials and those products not repackaged by the Company are purchased directly from manufacturers. It is common in the swimming pool supply industry for certain manufacturers to offer extended dating terms on certain
products to quantity purchasers such as Leslies. These dating terms are typically available to the Company for pre-season or early season purchases.



The Companys principal chemical raw materials and granular chlorine compounds are purchased primarily from three suppliers. At the end of fiscal
1997, the Company entered into a multi-year product purchase agreement with a major producer of one of the principal chlorine compounds, the chlorinated isocyanurates. The Company believes there are several other reliable suppliers of chlorine
products in the marketplace today. Although the Company has one sole source supplier for a nonchlorine shocking compound, the Company believes that termination of supply would not pose any significant problems because substitute chemicals and
alternate shocking techniques are available. The Company believes that reliable alternative sources of supply are available for all of its raw materials and finished products.



Vertical Integration



Leslies operates a plant in the Los Angeles area where it converts dry granular chlorine into tablet form and repackages a variety of bulk chemicals
into various sized containers suitable for retail sales. Leslies also formulates a variety of specialty liquids, including water clarifiers, tile cleaners, algaecides and stain preventives. The chemicals the Company processes have a relatively
long shelf life. Leslies believes that supplying its stores with chemicals from its own repackaging plant provides it with cost savings, as well as greater control over product availability and quality, as compared to non-integrated pool
supply retailers. It also offers the Company greater flexibility of product sourcing and acquiring vital information when negotiating with third-party repackagers and chemical providers. The Leslies brand name appears on all products processed
at its repackaging plant, and on the majority of all its chemical products. The Company believes it is among the largest processors of chlorine products for the swimming pool supply industry.



In connection with the operation of its three distribution centers outside of
California, the Company has expanded its use of third-party chemical repackagers and its purchase of products already in end-use configurations. These products are also generally packaged under the Leslies brand name. The Company continually
evaluates the cost effectiveness of third-party sourcing versus internal manufacturing in order to minimize its cost of goods. During 2003, the Company expanded its packaging operation of specialty items to its Hebron, Kentucky distribution
facility. In addition to chemicals, a variety of the Companys other products are packaged under the Leslies brand name.



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Distribution



In 2004, the Company distributed all of its products to its retail stores and to its catalog customers through its leased distribution facilities in
Ontario, California; Dallas, Texas; Swedesboro, New Jersey; and Hebron, Kentucky.



The Company purchases the majority of the chemicals to be distributed from the Dallas, Swedesboro and Hebron distribution centers from outside manufacturers rather than obtaining them through its repackaging facility
in Southern California. During the height of its seasonal activities, each of the Companys retail stores is generally replenished every 5 to 7 days.



The Company utilizes a variety of leased and owned equipment, supplemented by additional equipment leased during the busy season, to transport its goods
to stores.



Competition



Primary elements of competition in the retail swimming pool supply industry
are price, technical assistance, customer service, product selection and product availability. Most of the Companys competition comes from local stores or regional chains which do not repackage or manufacture products and which generally buy
products in smaller quantities. The chain store competitors include a large franchise operator of approximately 140 retail outlets in the Florida market and a limited number of other retail chains of approximately 15 to 30 stores.



The Company competes on selected principal products such as chlorine with
large volume, mass merchant and home center retailers. While the ability of these merchants to accept low margins on the limited number of items they offer makes them aggressive price competitors of the Company, they are not generally priced
significantly below Leslies and do not offer the level of customer service or wide selection of swimming pool supplies available at Leslies.



Employees



As of October 2, 2004, Leslies employed 1,892 persons. During the height of the Companys seasonal activities in 2004, it employed 2,696
persons, including seasonal and part-time store employees who generally are not employed during the off season. The Company is not subject to any collective bargaining agreements and believes its relationships with its employees are good.



Trademarks



In the course of its business, Leslies employs various trademarks,
trade names and service marks as well as its logo in packaging and advertising its products. The Company has registered trademarks and trade names for several of its major products on the Principal Register of the United States Patent and Trademark
Office. The Company distinguishes the products produced in its chemical repackaging operation or by third party repackagers at its direction through the use of the Leslies brand name and logo and the trademarks and trade names of the
individual items, none of which is patented, licensed, or otherwise restricted to or by the Company. The Company believes the strength of its trademarks and trade names has been beneficial to its business and intends to continue to protect and
promote its trademarks in appropriate circumstances.



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ITEM 2. PROPERTIES



As of October
2, 2004, the Company operated 474 stores in 36 states. The following table sets forth information concerning the Companys stores:



|               |  |                
|-------------- |  | ---------------
|State          |  | Number ofStores
|Alabama        |  | 5              
|Arizona        |  | 40             
|Arkansas       |  | 1              
|California     |  | 109            
|Colorado       |  | 1              
|Connecticut    |  | 9              
|Delaware       |  | 2              
|Florida        |  | 32             
|Georgia        |  | 18             
|Illinois       |  | 6              
|Indiana        |  | 6              
|Iowa           |  | 1              
|Kansas         |  | 1              
|Kentucky       |  | 4              
|Louisiana      |  | 6              
|Maryland       |  | 5              
|Massachusetts  |  | 9              
|Michigan       |  | 7              
|Mississippi    |  | 1              
|Missouri       |  | 8              
|Nebraska       |  | 1              
|Nevada         |  | 14             
|New Hampshire  |  | 2              
|New Jersey     |  | 22             
|New Mexico     |  | 2              
|New York       |  | 21             
|North Carolina |  | 4              
|Ohio           |  | 10             
|Oklahoma       |  | 7              
|Pennsylvania   |  | 18             
|Rhode Island   |  | 1              
|South Carolina |  | 3              
|Tennessee      |  | 7              
|Texas          |  | 83             
|Utah           |  | 1              
|Virginia       |  | 7              
|               |  |                
|Total Stores   |  | 474            
|               |  |                



Except for 26 owned
stores, the Company has leases on the remaining retail stores with lease terms expiring between 2004 and 2013. The Companys typical lease term is five years, and in the majority of instances, the Company has renewal options at increased rents.
Five leases provide for rent contingent on sales exceeding specific amounts. No other leases require payment of percentage rent.



The Companys corporate office is located in Phoenix, Arizona. The 38,000 square foot office building was leased for five years and had one five-year
renewal option. During 2002, the Company renegotiated its existing lease adding approximately 16,000 square feet of space. The new lease extends the maturity until June 2009, and has one five-year renewal option.



The Companys Southern California distribution center is located in a
183,000 square foot facility Ontario, California. The Ontario facility was leased for 10 years, expiring in 2007 and the lease has two five-year renewal options. The Companys distribution facility in Dallas, Texas contains 100,000 square feet
of space. The lease of this facility expires in 2005. The 119,000 square foot distribution facility in Bridgeport, New Jersey is leased for a 10-year term, expiring in 2008. The lease includes options to renew for two five-year periods. The 146,000
square foot distribution center in Covington, Kentucky was leased for a 12 year term and provides for two five-year renewal options.



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ITEM 3. LEGAL PROCEEDINGS



The
Company is routinely involved in legal proceedings related to the ordinary course of its business; however, we are currently not party to any material legal proceedings. Management does not believe any current legal proceedings will have a material
adverse effect on the Company.



ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS



None.



PART II



ITEM 5. MARKET FOR REGISTRANTS COMMON EQUITY AND RELATED STOCKHOLDER MATTERS



There is no public trading market for the Companys common stock. There are 11 holders of the Companys common stock. The Company has not paid
any dividends on its common stock and does not anticipate doing so in the foreseeable future.



Recent Sales of Unregistered Securities



We have not made any sales of unregistered securities during the past three years.



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ITEM 6. SELECTED FINANCIAL DATA



SELECTED CONSOLIDATED FINANCIAL DATA



The
following table presents selected consolidated financial data of the Company as of and for the fiscal years ended October 2, 2004, September 27, 2003, September 28, 2002, September 29, 2001 and September 30, 2000. The fiscal year ended October 2,
2004 consists of 53 weeks, and all other presented consist of 52 weeks. This financial data was derived from the audited historical consolidated financial statements of the Company and should be read in conjunction with the consolidated financial
statements of the Company and Managements Discussion and Analysis of Financial Condition and Results of Operations included elsewhere in this Annual Report.



|                                       |  |                               |         |   |                                 |   |         |                                 |  |   |                                 |   |  |                                 |         |    |  |   |         |  
|-------------------------------------- |  | ----------------------------- | ------- | - | ------------------------------- | - | ------- | ------------------------------- |  | - | ------------------------------- | - |  | ------------------------------- | ------- | -- |  | - | ------- | -
|                                       |  | Fiscal Years Ended            |        
|(Dollar Amounts in Thousands,          |  | October 2, 2004 (restated)(1) |         |   | September 27,2003 (restated)(1) |   |         | September 28,2002 (restated)(1) |  |   | September 29,2001 (restated)(1) |   |  | September 30,2000 (restated)(1) |        
|Operating Results:                     |  |                               |         |   |                                 |   |         |                                 |  |   |                                 |   |  |                                 |         |    |  |   |         |  
|Sales                                  |  | $                             | 356,041 |   |                                 | $ | 327,165 |                                 |  | $ | 313,311                         |   |  | $                               | 301,700 |    |  | $ | 303,163 |  
|Gross Profit                           |  |                               | 172,113 |   |                                 |   | 155,946 |                                 |  |   | 146,971                         |   |  |                                 | 135,298 |    |  |   | 131,195 |  
|Gross Margin(2)                        |  |                               | 48.3    | % |                                 |   | 47.7    | %                               |  |   | 46.9                            | % |  |                                 | 44.8    | %  |  |   | 43.3    | %
|Loss on Disposition of Fixed Assets    |  |                               | 440     |   |                                 |   | 497     |                                 |  |   | 1,332                           |   |  |                                 | 919     |    |  |   | 1,477   |  
|Depreciation and Amortization          |  |                               | 11,281  |   |                                 |   | 10,186  |                                 |  |   | 9,631                           |   |  |                                 | 9,175   |    |  |   | 9,093   |  
|Income from Operations(2)              |  |                               | 34,232  |   |                                 |   | 27,656  |                                 |  |   | 20,073                          |   |  |                                 | 15,559  |    |  |   | 6,479   |  
|Interest Expense, net                  |  |                               | 7,172   |   |                                 |   | 9,566   |                                 |  |   | 10,690                          |   |  |                                 | 12,320  |    |  |   | 12,536  |  
|Net Income/(Loss)(2)                   |  |                               | 16,246  |   |                                 |   | 10,343  |                                 |  |   | 4,693                           |   |  |                                 | 1,218   |    |  |   | (4,713  | )
|Balance Sheet Data:                    |  |                               |         |   |                                 |   |         |                                 |  |   |                                 |   |  |                                 |         |    |  |   |         |  
|Working Capital                        |  |                               | 33,354  |   |                                 |   | 15,410  |                                 |  |   | 34,634                          |   |  |                                 | 28,548  |    |  |   | 31,257  |  
|Total Assets                           |  |                               | 144,836 |   |                                 |   | 130,220 |                                 |  |   | 143,139                         |   |  |                                 | 133,840 |    |  |   | 139,297 |  
|Long-term Debt(5)                      |  |                               | 105,811 |   |                                 |   | 105,410 |                                 |  |   | 135,517                         |   |  |                                 | 133,181 |    |  |   | 128,514 |  
|Stockholders Deficit                  |  |                               | (39,091 | ) |                                 |   | (48,177 | )                               |  |   | (52,899                         | ) |  |                                 | (52,284 | )  |  |   | (47,764 | )
|Selected Operating Data:               |  |                               |         |   |                                 |   |         |                                 |  |   |                                 |   |  |                                 |         |    |  |   |         |  
|Capital Expenditures                   |  |                               | 10,899  |   |                                 |   | 8,616   |                                 |  |   | 8,472                           |   |  |                                 | 7,733   |    |  |   | 9,701   |  
|Unusual and Restructuring Charges(2,3) |  |                               |        |   |                                 |   |        |                                 |  |   | 1,500                           |   |  |                                 | 1,466   |    |  |   | 3,173   |  
|Adjusted EBITDA(2,3)                   |  |                               | 45,513  |   |                                 |   | 37,842  |                                 |  |   | 31,204                          |   |  |                                 | 26,200  |    |  |   | 19,169  |  
|Adjusted EBITDA Margin(2,4)            |  |                               | 12.8    | % |                                 |   | 11.6    | %                               |  |   | 10.0                            | % |  |                                 | 8.7     | %  |  |   | 6.3     | %
|Cash flow from Operating Activities    |  |                               | 21,358  |   |                                 |   | 32,745  |                                 |  |   | 20,637                          |   |  |                                 | 15,511  |    |  |   | 12,295  |  
|Cash flow used in Investing Activities |  |                               | (10,281 | ) |                                 |   | (8,607  | )                               |  |   | (8,452                          | ) |  |                                 | (7,595  | )  |  |   | (9,228  | )
|Cash flow used in Financing Activities |  |                               | (260    | ) |                                 |   | (32,112 | )                               |  |   | (957                            | ) |  |                                 | (6,400  | )  |  |   | (3,432  | )
|Number of Employees                    |  |                               | 1,892   |   |                                 |   | 2,006   |                                 |  |   | 1,843                           |   |  |                                 | 1,805   |    |  |   | 1,813   |  
|Number of Stores                       |  |                               | 474     |   |                                 |   | 437     |                                 |  |   | 410                             |   |  |                                 | 391     |    |  |   | 383     |  
|                                       |  |                               |         |   |                                
|Comparable Store Sales Growth(6)       |  |                               | 3.3     | % |                                 |   | 2.3     | %                               |  |   | 1.9                             | % |  |                                 | (0.8    | )% |  |   | 3.8     | %

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|(1) | We have reclassified tenant improvement allowances from a contra asset in property, plant and equipment, net to other long term liabilities in the consolidated
balance sheets. The amortization of the tenant improvement allowances has also been reclassified from a reduction of depreciation and amortization expense to a reduction in rent expense. The receipt of tenant improvement allowances has been
reclassified in the statement of cash flows by increasing purchase of property, plant and equipment, and increasing cash provided by or decreasing cash used in operating activities. See Note 1 to Consolidated Financial Statements for reconciliation
of adjustment.
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|(2) | During the second quarter of 2002, the Company recorded an unusual charge of $1.5 million for expenses associated with defending a purported class action lawsuit
that was settled. The Company recorded a restructuring charge of $1.5 million in the first quarter of 2001 for expenses associated with the relocation of its corporate office to Phoenix, Arizona. In the fourth quarter of 2000, the Company recognized
an unusual charge consisting of $2.1 million for expenses principally associated with its decision to write-off nonproductive aged inventory, $0.8 million in restructuring costs for expenses associated with the relocation of its corporate office,
and an additional $0.2 million in accrued expenses for other corporate office move related expenses.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) | Adjusted EBITDA is defined as earnings before interest, taxes, depreciation, amortization,
loss/(gain) on disposition of fixed assets, stock compensation expense, write-off of debt issuance costs and unusual charges. Adjusted EBITDA is not a measure of financial performance under U.S. generally accepted accounting principles (GAAP), but
is used by some investors to determine a companys ability to service or incur indebtedness. Adjusted EBITDA is not calculated in the same manner by all companies and accordingly is not necessarily comparable to similarly entitled measures of
other companies and may not be an appropriate measure for performance relative to other companies. Adjusted EBITDA should not be construed as an indicator of a companys operating performance or liquidity, and should not be considered in
isolation from or as a substitute for net income (loss), cash flows from operations or cash flow data which are all prepared in accordance with GAAP. We have presented Adjusted EBITDA solely as supplemental disclosure because we believe it allows
for a more complete analysis of results of operations. Adjusted EBITDA is not intended to represent and should not be considered more meaningful than, or as an alternative to, measures of operating performance as determined in accordance with GAAP.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The calculation of Adjusted EBITDA is shown as follows:



|                                 |  |                               |        |                                 |   |                                   |  |                                   |        |                                   |   |        |  |   |        |  
|-------------------------------- |  | ----------------------------- | ------ | ------------------------------- | - | --------------------------------- |  | --------------------------------- | ------ | --------------------------------- | - | ------ |  | - | ------ | -
|                                 |  | Fiscal Years Ended            |       
|(Amounts in Thousands)           |  | October 2, 2004(restated) (1) |        | September 27,2003(restated) (1) |   | September 28, 2002 (restated) (1) |  | September 29, 2001 (restated) (1) |        | September 30, 2000 (restated) (1) |  
|Net income/(loss)                |  |                               | 16,246 |                                 | $ | 10,343                            |  | $                                 | 4,693  |                                   | $ | 1,218  |  | $ | (4,713 | )
|Depreciation and amortization    |  |                               | 11,281 |                                 |   | 10,186                            |  |                                   | 9,631  |                                   |   | 9,175  |  |   | 9,093  |  
|Stock compensation expense       |  |                               |       |                                 |   |                                  |  |                                   |       |                                   |   |       |  |   | 424    |  
|Unusual charges                  |  |                               |       |                                 |   |                                  |  |                                   | 1,500  |                                   |   | 1,466  |  |   | 3,173  |  
|Interest expense, net            |  |                               | 7,172  |                                 |   | 9,566                             |  |                                   | 10,690 |                                   |   | 12,320 |  |   | 12,536 |  
|Write-off of debt issuance costs |  |                               |       |                                 |   | 420                               |  |                                   |       |                                   |   |       |  |   |       |  
|Loss on disposition of assets    |  |                               | 440    |                                 |   | 497                               |  |                                   | 1,332  |                                   |   | 919    |  |   | 1,477  |  
|Income tax expense/(benefit)     |  |                               | 10,374 |                                 |   | 6,830                             |  |                                   | 3,358  |                                   |   | 1,102  |  |   | (2,821 | )
|                                 |  |                               |        |                                 |   |                                   |  |                                   |        |                                   |   |        |  |   |        |  
|Adjusted EBITDA                  |  | $                             | 45,513 |                                 | $ | 37,842                            |  | $                                 | 31,204 |                                   | $ | 26,200 |  | $ | 19,169 |  
|                                 |  |                               |        |                                 |   |                                   |  |                                   |        |                                   |   |        |  |   |        |  

---

|(4) | Adjusted EBITDA Margin represents Adjusted EBITDA as a percentage of sales.
|--- | ---------------------------------------------------------------------------

|(5) | Beginning October 3, 2004, the Company was required to adopt SFAS No. 150 and classify
preferred stock, previously included in the mezzanine portion of the balance sheet, as long-term debt. All periods presented have been reclassified for consistency of presentation.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(6) | The Company considers a store to be comparable in the first full month after it has completed 52 weeks of sales. Closed stores become non-comparable during their
last partial month of operation. Stores that are relocated are considered comparable stores at the time the relocation is completed. Comparable store sales is not a measure of financial performance under GAAP. Comparable store sales is not
calculated in the same manner by all companies and accordingly is not necessarily comparable to similarly entitled measures of other companies and may not be an appropriate measure for performance relative to other companies.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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##### Table of Contents

ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS



The Private Securities Litigation Reform Act of 1995 provides a safe harbor for forward-looking statements. Certain information included in
this document (as well as information included in oral statements or other written statements made or to be made by the Company) contains statements that are forward-looking, such as statements relating to plans for future activities. Such
forward-looking information involves important risks and uncertainties that could significantly affect anticipated results in the future and, accordingly, such results may differ from those expressed in any forward-looking statements made by or on
behalf of the Company. These risks and uncertainties include, but are not limited to, those relating to domestic economic conditions, activities of competitors, seasonality, changes in federal or state tax laws and of the administration of such laws
and the general condition of the economy.



EXECUTIVE SUMMARY



Leslies is the leading national specialty retailer of swimming pool
supplies and related products. The Company offers a broad range of products that consist of regularly purchased, non-discretionary pool maintenance items such as chemicals, equipment, cleaning accessories and parts, and also include fun, safety and
fitness-oriented recreational items. The Company markets its products through 471 company-owned retail stores, three company-owned commercial service centers in 36 states and through catalogs and other offerings made available to select residential
and commercial pool owners nationwide via mail order and internet channels.



The Company provides its customers a comprehensive selection of high quality products, competitive every day low prices and superior customer service through knowledgeable and responsive sales personnel who offer a
high level of technical assistance at convenient store locations. The typical Leslies store contains 3,863 square feet of space, is located either in a strip center or on a freestanding site in an area of heavy retail activity, and draws its
customers primarily from an approximately three-mile trade area. The Company operates three commercial service centers that average approximately 11,000 square feet of space and are located primarily in industrial type real estate space. These
centers are designed to cater to the Companys existing non-residential commercial and service customers and provide more customized service then is typically available at the other retail locations. The Company also maintains a proprietary
mailing list of approximately 5.8 million addresses, including approximately 80% of the residential in-ground pools in the U.S. This list of customers is central to the Companys direct mail marketing efforts, which support both its retail
store and mail order operations.



Results of Operations



The following table sets forth certain statements of income data expressed
as a percentage of sales for the periods indicated.



|                                            |  |                    |   |  |                    |   |  |                    |  
|------------------------------------------- |  | ------------------ | - |  | ------------------ | - |  | ------------------ | -
|                                            |  | Fiscal Years Ended |  
|                                            |  | October 2, 2004    |   |  | September 27, 2003 |   |  | September 28, 2002 |  
|Sales                                       |  | 100.0              | % |  | 100.0              | % |  | 100.0              | %
|Cost of sales                               |  | 51.7               |   |  | 52.3               |   |  | 53.1               |  
|                                            |  |                    |   |  |                    |   |  |                    |  
|Gross margin                                |  | 48.3               |   |  | 47.7               |   |  | 46.9               |  
|Selling, general and administrative expense |  | 38.7               |   |  | 39.2               |   |  | 39.9               |  
|Unusual expense                             |  |                   |   |  |                   |   |  | 0.5                |  
|Amortization of goodwill                    |  |                   |   |  |                   |   |  | 0.1                |  
|                                            |  |                    |   |  |                    |   |  |                    |  
|Operating income                            |  | 9.6                |   |  | 8.5                |   |  | 6.4                |  
|Other interest/income                       |  | 2.1                |   |  | 3.2                |   |  | 3.8                |  
|Income tax expense                          |  | 2.9                |   |  | 2.1                |   |  | 1.1                |  
|                                            |  |                    |   |  |                    |   |  |                    |  
|Net income                                  |  | 4.6                | % |  | 3.2                | % |  | 1.5                | %
|                                            |  |                    |   |  |                    |   |  |                    |  



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##### Table of Contents

Fiscal year 2004 compared to Fiscal year 2003:



For the 53 weeks ended October 2, 2004, sales increased 8.8% to $356.0 million from $327.2 million in the 52 weeks of 2003.
The sales increase is attributable to an increase in comparable store sales as well as the addition of 38 new store locations offset by the closing of one store during fiscal 2004.



Comparable store sales increased 3.3% as compared to the prior year. The comparable store sales increase was attributable to
increased marketing and merchandising efforts and an increase in customer counts. For definition purposes, a store is considered a comparable store in the first full month after it has completed 52 weeks of sales. Closed stores become non-comparable
during their last partial month of operation. Stores that are relocated are considered comparable stores at the time the relocation is completed.



Gross profit for the fiscal year ended October 2, 2004 improved to $172.1 million or 48.3% of sales, as compared to $155.9 million or 47.7% in 2003. Gross
profit represents sales less the cost of services and purchased goods, chemical repackaging costs, and related distribution costs. The gross margin percent increase in 2004 is a result of the lower acquisition costs and improved distribution
expenses compared to the prior year.



In 2004, total operating
expenses were $137.9 million, versus $128.3 million in 2003, an increase of 7.5%. The increase in operating expenses in 2004 was due primarily to the costs associated with the increase in store count and higher insurance expenses associated with
workers compensation and property and casualty coverage. The Company expects to be impacted by continuing increases in insurance related expenses. However, the Company does not expect to experience cost increases of greater proportion than the
retail industry in general. Expenses as a percent of sales were 38.7% as compared to 39.2% in the prior year.



For the fiscal year ended October 2, 2004, the Company recognized losses on the disposition of fixed assets totaling approximately $440,000 as compared to
$497,000 in the prior year. These losses were primarily associated with our decision to close or relocate stores that were unproductive or not meeting expectations.



Adjusted EBITDA in 2004 increased 20.3% to $45.5 million from $37.8 million in the 52 weeks of 2003. This increase was
primarily the result of increased sales, improved gross margins and effective expense controls achieved during the year.



Income from operations for the period increased 23.8% to $34.2 million from $27.7 million in 2003 as a result of the previously noted items.



Interest expense was $7.2 million in 2004, as compared to $9.6 million in
2003. The decrease was primarily the result of reduced average debt balances and the reduction in the related borrowing rates during the year.



The Company recorded $420,000 of expenses in 2003 for the write-off of debt issuance costs associated with the refinancing of our Senior Notes due 2004
that was completed in May of 2003.



The Company recorded income
tax expenses of $10.4 million in 2004, or an effective tax rate of 39.0%, versus $6.8 million, or an effective tax rate of 39.8% in the prior year. The decrease in effective tax rate is partially related to the benefit we received related to the
change in federal tax rate applied to net deferred tax assets.



Fiscal year
2003 compared to Fiscal year 2002



For the 52 weeks ended
September 27, 2003, sales increased 4.4% to $327.2 million from $313.3 million in the same 52 weeks of 2002. The sales increase is attributable to an increase in comparable store sales as well as the addition of 28 new store locations offset by the
closing of one store during the 52 weeks of 2003.



Comparable
store sales increased 2.3% as compared to the prior year. The comparable store sales increase was attributable to increased marketing and merchandising efforts and an increase in customer counts. For definition purposes, a store is considered a
comparable store in the first full month after it has completed 52 weeks of sales. Closed stores become non-comparable during their last partial month of operation. Stores that are relocated are considered comparable stores at the time the
relocation is completed.



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##### Table of Contents

During fiscal 2003, the Company expanded its business by opening 28 new stores. Additionally, one store
was closed and two were relocated in 2003. This resulted in a net increase of 27 stores as of September 27, 2003 as compared to September 27, 2002.



Gross profit for the fiscal year ended September 27, 2003 improved to $155.9 million or 47.7% of sales, as compared to $147.0 million or 46.9% in 2002.
Gross profit represents sales less the cost of services and purchased goods, chemical repackaging costs, and related distribution costs. The gross margin percent increase in 2003 is a result of the lower acquisition costs and lower distribution
expenses as a percent of sales.



In 2003, total operating
expenses were $128.3 million, versus $126.9 million in 2002, an increase of 1.1%. The increase in operating expenses in 2003 was due primarily to the costs associated with the increase in store count and higher insurance related expenses associated
with workers compensation and property and casualty coverage. The Company expects to be impacted by continuing increases in insurance related expenses. However, the Company does not expect to experience cost increases of greater proportion than the
retail industry in general. Expenses as a percent of sales were 39.2% as compared to 40.5% in the prior year.



On September 29, 2002, the Company applied the new rules on accounting for goodwill and other intangible assets deemed to have indefinite lives and
therefore there was no goodwill amortization expense recorded for the fiscal year ended September 27, 2003 as compared to $319,000 in the same period of 2002.



For the fiscal year ended September 27, 2003, the Company recognized losses on the disposition of fixed assets totaling approximately $497,000 as
compared to $1.3 million in the prior year. These losses were primarily associated with our decision to close or relocate stores that were unproductive or not meeting expectations.



Adjusted EBITDA in 2003 increased 21.3% to $37.8 million from $31.2 million in the same 52 weeks of 2002. This increase was
primarily the result of increased sales, improved gross margins and effective expense controls achieved during the year.



Income from operations for the period increased 37.8% to $27.7 million from $20.1 million in 2002 as a result of the previously noted items.



Interest expense was $9.6 million in 2003, as compared to $10.7 million in
2002. The decrease was primarily the result of reduced average debt balances and the reduction in the related borrowing rates during the year.



The Company recorded no unusual expense in 2003 as compared to a $1.5 million charge in 2002 for expenses associated with defending a purported class
action lawsuit that was settled.



The Company recorded $420,000
of expenses in 2003 for the write-off of debt issuance costs associated with the refinancing of our Senior Notes due 2004 that was completed in May of 2003.



The Company recorded income tax expenses of $6.8 million in 2003, or an effective tax rate of 39.8% versus $3.4 million, or an effective tax rate of 41.7%
in the prior year. The effective tax rate in 2003 was lower due primarily to the fact that the permanent tax differences in 2003 were lower which had the impact of reducing the overall effective tax rate.



Risks Relating to the Company



A small group of stockholders are able to exercise control over our business.



Green Equity Investors II, L.P., through its ownership of
a majority of the outstanding shares of Leslies common stock, together with Michael J. Fourticq, by virtue of contractual arrangements, have the power to elect a majority of our board of directors. Accordingly, Green Equity Investors and Mr.
Fourticq have the power to approve all amendments to our certificate of incorporation and bylaws and to effect fundamental corporate transactions such as mergers, asset sales and public offerings.



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##### Table of Contents

Our continued success depends on our successful expansion in new and existing markets.



Our continued growth depends to a significant degree on our ability to
open new stores in existing and new markets and to operate these stores on a profitable basis. To a lesser extent, our continued growth depends on increasing comparable store sales. We opened 19 net new stores in 2002, 28 net additional retail
stores in 2003 and 37 net additional stores in 2004. We cannot assure you that we will be able to open new stores in a timely manner; to hire, train and integrate employees; to continue locating and obtaining favorable store sites; and to adapt our
distribution, management information and other operating systems to the extent necessary to grow in a successful and profitable manner. Further, we cannot assure you that our new stores will achieve historical levels of sales or profitability.
Additionally, our expansion plans could be adversely affected by a significant downturn in the economy and resulting decrease in new home and swimming pool construction. We expect that our quarterly results of operations will fluctuate depending on
the timing and the amount of revenue contributed by new stores and, to a lesser degree, the timing of costs associated with the opening of new stores.



Our results of operations fluctuate as a result of weather conditions.



Our business exhibits substantial seasonality which we believe is typical of the swimming pool supply industry. In general, sales and earnings are highest
during the second and third quarters, which represent the peak months of swimming pool use. Typically, all of our operating income is generated in these two quarters which offsets the operating losses incurred in each of the other two quarters. Our
business is significantly affected by weather patterns. For example, unseasonably late warming trends can decrease the length of the pool season, and unseasonably cool weather and/or extraordinary amounts of rainfall in the peak season may decrease
swimming pool use, resulting in lower maintenance needs and decreased sales.



We may not be able to successfully compete.



Most of our competition comes from local stores or regional chains which, unlike us, do not repackage products and which generally buy products in smaller quantities. The chain store competitors include a large franchise operator of
approximately 140 retail outlets in the Florida market and a limited number of other retail chains of approximately 15 to 30 stores. We compete on selected principal products with large-volume mass merchants and home centers which offer a limited
selection of pool supplies as compared to us. There are no proprietary technologies or other significant barriers to prevent other firms from entering the swimming pool supply retail market in the future. Competition could adversely impact our sales
and operating margins.



Our business includes the packaging and storage of
chemicals and an accident related to those chemicals could subject us to liability and increases costs.



We operate a chemical repackaging facility in Ontario, California and store chemicals in our retail stores and in distribution facilities in Ontario,
California; Dallas, Texas; Swedesboro, New Jersey and Hebron, Kentucky. Since some of the chemicals we repackage and store are flammable or combustible compounds, we must comply with various fire and safety ordinances. However, a fire at one of our
facilities could give rise to liability claims against us. In addition, if an incident involves the repackaging or a distribution facility, we might be required temporarily to use alternate sources of supply which could increase our cost of sales.



We are dependent on key personnel and the loss of their services could
adversely affect us.



We believe that our success is
largely dependent upon the abilities and experience of our senior management team. The loss of services of one or more of these senior executives could adversely affect our results of operations.



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##### Table of Contents

Liquidity and Capital Resources



Overview



The following table sets highlights selected cash flow components for fiscal year 2004 and fiscal year 2003, and selected balance sheet components as of
October 2, 2004 and September 27, 2003.



|                              |  |                            |         |   |                               |   |         |                          |  |   |                           |   |  |       |   
|----------------------------- |  | -------------------------- | ------- | - | ----------------------------- | - | ------- | ------------------------ |  | - | ------------------------- | - |  | ----- | --
|                              |  | Fiscal Years Ended         |         |   |                               |   |         |                          | 
|(Dollar amounts in thousands) |  | October 2, 2004 (restated) |         |   | September 27, 2003 (restated) |   |         | Dollar Change (restated) |  |   | Percent Change (restated) |  
|Cash provided by (used in):   |  |                            |         |   |                               |   |         |                          |  |   |                           |   |  |       |   
|Operating activities          |  | $                          | 21,358  |   |                               | $ | 32,745  |                          |  | $ | (11,387                   | ) |  | (34.8 | )%
|Investing activities          |  |                            | (10,281 | ) |                               |   | (8,607  | )                        |  |   | (1,674                    | ) |  | (19.5 | ) 
|Financing activities          |  |                            | (260    | ) |                               |   | (32,112 | )                        |  |   | 31,852                    |   |  | 99.2  |   
|                              |  |                            |         |   |                               |   |         |                          |  |   |                           |   |  |       |   
|Cash & cash equivalents       |  | $                          | 20,839  |   |                               | $ | 10,022  |                          |  | $ | 10,817                    |   |  | 107.9 | % 
|Working Capital               |  |                            | 33,354  |   |                               |   | 15,410  |                          |  |   | 17,944                    |   |  | 116.4 |   
|Other long term liabilities   |  |                            | 16,917  |   |                               |   | 9,198   |                          |  |   | 7,719                     |   |  | 83.9  |   
|Senior notes, due 2008        |  |                            | 59,495  |   |                               |   | 59,495  |                          |  |   |                          |   |  |      |   
|                              |  |                            |         |   |                               |   |         |                          |  |   |                           |   |  |       |   



Working capital



Working capital as of October 2, 2004 and September 27, 2003 consisted of
the following:



|                                          |  |                    |        |                    |   |               |  |   |                |   |  |       |  
|----------------------------------------- |  | ------------------ | ------ | ------------------ | - | ------------- |  | - | -------------- | - |  | ----- | -
|                                          |  | Fiscal Years Ended |        |                    |   |               |  |  
|(Dollar amounts in thousands)             |  | October 2, 2004    |        | September 27, 2003 |   | Dollar Change |  |   | Percent Change |  
|Cash and cash equivalents                 |  | $                  | 20,839 |                    | $ | 10,022        |  | $ | 10,817         |   |  | 107.9 | %
|Accounts and other receivables            |  |                    | 10,505 |                    |   | 7,801         |  |   | 2,704          |   |  | 34.7  |  
|Inventories                               |  |                    | 54,765 |                    |   | 53,030        |  |   | 1,735          |   |  | 3.3   |  
|Prepaid expenses and other current assets |  |                    | 1,404  |                    |   | 1,301         |  |   | 103            |   |  | 7.9   |  
|Deferred tax assets                       |  |                    | 6,981  |                    |   | 6,028         |  |   | 953            |   |  | 15.8  |  
|                                          |  |                    |        |                    |   |               |  |   |                |   |  |       |  
|Total current assets                      |  |                    | 94,494 |                    |   | 78,182        |  |   | 16,312         |   |  | 20.9  |  
|                                          |  |                    |        |                   
|Accounts payable                          |  |                    | 22,247 |                    |   | 26,217        |  |   | (3,970         | ) |  | (15.1 | )
|Accrued expenses                          |  |                    | 30,643 |                    |   | 28,739        |  |   | 1,904          |   |  | 6.6   |  
|Income taxes payable                      |  |                    | 8,250  |                    |   | 7,816         |  |   | 434            |   |  | 5.6   |  
|                                          |  |                    |        |                    |   |               |  |   |                |   |  |       |  
|Total current liabilities                 |  |                    | 61,140 |                    |   | 62,772        |  |   | (1,632         | ) |  | (2.6  | )
|                                          |  |                    |        |                    |   |               |  |   |                |   |  |       |  
|Working capital                           |  | $                  | 33,354 |                    | $ | 15,410        |  | $ | 17,944         |   |  | 116.4 | %
|                                          |  |                    |        |                    |   |               |  |   |                |   |  |       |  



From September
27, 2003 to October 2, 2004, total current assets increased $16.3 million from $78.2 million to $94.5 million. The increase in current assets resulted primarily from the increase in cash and partially to an increase in inventories due to the
increase in store count.



Total current liabilities decreased
by $1.6 million from October 2, 2004 as compared to September 27, 2003. Accounts payables decreased slightly as compared to the prior year due to the timing of disbursements.



For the fiscal year ended October 2, 2004, net cash provided by operating activities was $21.4 million compared to cash
provided by operating activities of $32.7 million in the prior year. The change was due primarily to the increase in profitability, changes in accounts payable and accrued expenses due to the timing of disbursements.



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##### Table of Contents

In 2004, cash used in investing activities was $10.3 million as compared with $8.6 million in the prior
year. The Company anticipates cash used in investing activities to increase in 2005 primarily related to the opening of additional stores.



Cash used in financing activities was $0.3 million in fiscal year 2004 compared with cash used in financing activities of $32.1 million in 2003. The
significant decrease in financing activities was due to the early redemption of $30.5 million aggregate principle amount of Senior Notes due 2004 completed in fiscal 2003. The Company had no borrowings at year-end 2004 or 2003 under its secured loan
agreement and at October 2, 2004 the Company had $35.3 million of borrowing capacity. Funds borrowed under this agreement are used primarily to fund working capital and other general corporate purposes.



Other long term liabilities increased by $7.7 million due primarily to the
increase in accrued dividends and interest payable on the Series A Preferred Stock. During fiscal 2003, this annual cumulative dividend converted to an accrued cash dividend and is payable at the annual rate of 15.875 percent, compounded
semi-annually. As of October 2, 2004, the cumulative unpaid dividend is $14.7 million as compared to $7.9 million as of September 27, 2003.



The Company believes its internally generated funds, as well as its borrowing capacity, are adequate to meet its working capital needs, maturing
obligations and capital expenditure requirements, including those relating to the opening of new stores.



Seasonality and Quarterly FluctuationsThe Companys business exhibits substantial seasonality which the Company believes is typical of the
swimming pool supply industry. In general, sales and net income are highest during the quarters ended June and September, which represent the peak months of swimming pool use. Sales are substantially lower during the quarters ended December and
March when the Company will typically incur net losses. The principal external factor affecting the Companys business is weather. Hot weather and the higher frequency of pool usage in such weather create a greater demand for more pool
chemicals and supplies. Unseasonably early or late warming trends can increase or decrease the length of the pool season. In addition, unseasonably cool weather and/or extraordinary amounts of rainfall in the peak season decrease swimming pool use.



The Company expects its quarterly results of operations will
fluctuate depending on the timing and amount of revenue contributed by new stores and, to a lesser degree, the timing of costs associated with the opening of new stores. The Company attempts to open its new stores primarily in the quarter ending in
March in order to position itself for the following peak season.



Contractual Obligations and Commercial Commitments



The following table summarizes the Companys significant contractual obligations as of October 2, 2004, and the effect such obligations are expected to have on our liquidity and cash flows in future periods. This table excludes amounts
already recorded on our balance sheet as current liabilities at October 2, 2004 and certain other purchase obligations as discussed below.



|                              |  |                        |         |                  |   |             |  |             |         |               |   |         |  |   |      
|----------------------------- |  | ---------------------- | ------- | ---------------- | - | ----------- |  | ----------- | ------- | ------------- | - | ------- |  | - | -----
|(in thousands)                |  | Payments Due By Period
|Contractual obligations       |  | Total                  |         | Less than 1 Year |   | 1  3 years |  | 4  5 years |         | After 5 years
|Senior notes                  |  | $                      | 90,355  |                  | $ | 6,172       |  | $           | 18,516  |               | $ | 65,667  |  | $ |     
|Operating leases              |  |                        | 107,413 |                  |   | 30,821      |  |             | 46,428  |               |   | 25,213  |  |   | 4,951
|Preferred stock               |  |                        | 76,214  |                  |   |            |  |             | 57,765  |               |   | 18,449  |  |   |     
|                              |  |                        |         |                  |   |             |  |             |         |               |   |         |  |   |      
|Total contractual obligations |  | $                      | 273,982 |                  | $ | 36,993      |  | $           | 122,709 |               | $ | 109,329 |  | $ | 4,951
|                              |  |                        |         |                  |   |             |  |             |         |               |   |         |  |   |      



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##### Table of Contents

|                               |  |                                             |       |                  |   |             |  |             |     |               |   |   |  |   |  
|------------------------------ |  | ------------------------------------------- | ----- | ---------------- | - | ----------- |  | ----------- | --- | ------------- | - | - |  | - | -
|(in thousands)                 |  | Amounts of Commitment Expiration Per Period
|Commercial Commitments         |  | Total AmountsCommitted                      |       | Less than 1 Year |   | 1  3 years |  | 4  5 years |     | After 5 years
|Standby letters of credit      |  | $                                           | 3,062 |                  | $ | 3,062       |  | $           |    |               | $ |  |  | $ | 
|Financial responsibility bonds |  | $                                           | 227   |                  | $ | 106         |  | $           | 121 |               | $ |  |  | $ | 



Purchase orders for
raw materials, finished goods and other goods and services are not included in the above table. We are not able to determine the aggregate amount of such purchase orders that represent contractual obligations, as purchase orders may represent
authorizations to purchase rather than binding agreements. For the purpose of this table, contractual obligations for purchase of goods or services are defined as agreements that are enforceable and legally binding on us and that specify all
significant terms, including: fixed or minimum quantities to be purchased; fixed, minimum or variable price provisions; and the approximate timing of the transaction. Our purchase orders are based on our current manufacturing needs and are fulfilled
by our vendors with relatively short timetables. We do not have significant agreements for the purchase of raw materials or finished goods specifying minimum quantities or set prices that exceed our short-term expected requirements.



The expected timing of payment of the obligations discussed above is
estimated based on current information. Timing of payments and actual amounts paid may be different depending on the time of receipt of goods or services or changes to agreed-upon amounts for some obligations.



Critical Accounting Policies and Estimates



The Companys consolidated financial statements have been prepared in
accordance with accounting principles generally accepted in the United States which requires the Company to make estimates and judgments that affect the reported amounts of assets, liabilities, sales and expenses. On an ongoing basis, the Company
evaluates its estimates, including those related to inventory reserves, allowance for doubtful accounts, valuation allowance for the net deferred income tax asset, contingencies and litigation liabilities. The Company bases its estimates on
historical experience, independent valuations, and various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities
that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.



The Company believes the following critical accounting policies affect its more significant judgments and estimates used in the preparation of its
consolidated financial statements.



Revenue on retail sales is
recognized upon purchase by the customer. Revenue on services, is recognized as services are performed and the fee is fixed or determinable and collection is probable. Terms are customarily FOB shipping point or point of sale, net of related
discounts. The Company does not provide an estimated allowance for sales returns as they are deemed to be immaterial.



Inventories are stated at the lower of cost or market. The Company values inventory using the weighted average method. Included in cost of sales are the
costs of services and purchased goods, chemical repackaging costs and related distribution costs. The Company recognizes consideration received from vendors at the time our obligations to purchase products or perform services have been completed.
These items are recorded as a reduction in cost of goods sold in the statement of operations.



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##### Table of Contents

Summarized Quarterly Financial Data (Unaudited)

( Dollar Amounts In Thousands)



|                                           |  |                             |        |   |                              |   |        |                             |  |   |                          |   |  |   |         |   
|------------------------------------------ |  | --------------------------- | ------ | - | ---------------------------- | - | ------ | --------------------------- |  | - | ------------------------ | - |  | - | ------- | --
|2004                                       |  | 13 Weeks Dec. 27 (restated) |        |   | 13 Weeks March 27 (restated) |   |        | 13 Weeks June 26 (restated) |  |   | 14 WeeksOct. 2(restated) |  
|Sales                                      |  | $                           | 40,820 |   |                              | $ | 38,848 |                             |  | $ | 151,953                  |   |  | $ | 124,420 |   
|Gross profit                               |  |                             | 18,430 |   |                              |   | 18,699 |                             |  |   | 75,223                   |   |  |   | 59,761  |   
|Operating income/(loss)                    |  |                             | (9,301 | ) |                              |   | (9,927 | )                           |  |   | 33,778                   |   |  |   | 19,682  |   
|Net income/(loss)                          |  |                             | (6,879 | ) |                              |   | (6,979 | )                           |  |   | 19,257                   |   |  |   | 10,847  |   
|Adjusted EBITDA(1)                         |  |                             | (6,586 | ) |                              |   | (7,239 | )                           |  |   | 36,545                   |   |  |   | 22,793  |   
|Comparable store sales growth/(decline)(2) |  |                             | 9.3    | % |                              |   | 4.1    | %                           |  |   | 5.7                      | % |  |   | (1.8    | )%



|                                           |  |                    |         |   |                     |   |         |                    |  |   |                     |    |  |   |         |  
|------------------------------------------ |  | ------------------ | ------- | - | ------------------- | - | ------- | ------------------ |  | - | ------------------- | -- |  | - | ------- | -
|                                           |  | 13 Weeks Ended     |        
|2003                                       |  | Dec. 28 (restated) |         |   | March 29 (restated) |   |         | June 28 (restated) |  |   | Sept. 27 (restated) |   
|Sales                                      |  | $                  | 35,897  |   |                     | $ | 35,554  |                    |  | $ | 139,026             |    |  | $ | 116,688 |  
|Gross profit                               |  |                    | 15,798  |   |                     |   | 16,310  |                    |  |   | 68,975              |    |  |   | 54,863  |  
|Operating income/(loss)                    |  |                    | (10,701 | ) |                     |   | (10,908 | )                  |  |   | 31,545              |    |  |   | 17,720  |  
|Net income/(loss)                          |  |                    | (8,128  | ) |                     |   | (8,323  | )                  |  |   | 17,337              |    |  |   | 9,457   |  
|Adjusted EBITDA(1)                         |  |                    | (8,276  | ) |                     |   | (8,477  | )                  |  |   | 34,052              |    |  |   | 20,544  |  
|Comparable store sales growth/(decline)(2) |  |                    | 13.7    | % |                     |   | 2.5     | %                  |  |   | (2.9                | )% |  |   | 5.9     | %

---

|(1) | Adjusted EBITDA is defined as earnings before interest, taxes, depreciation, amortization, loss/(gain) on disposition of fixed assets, stock compensation expense,
write-off of debt issuance costs and unusual charges. Adjusted EBITDA is not a measure of financial performance under U.S. generally accepted accounting principles (GAAP), but is used by some investors to determine a companys ability to
service or incur indebtedness. Adjusted EBITDA is not calculated in the same manner by all companies and accordingly is not necessarily comparable to similarly entitled measures of other companies and may not be an appropriate measure for
performance relative to other companies. Adjusted EBITDA should not be construed as an indicator of a companys operating performance or liquidity, and should not be considered in isolation from or as a substitute for net income (loss), cash
flows from operations or cash flow data all of which are prepared in accordance with GAAP. We have presented Adjusted EBITDA solely as supplemental disclosure because we believe it allows for a more complete analysis of results of operations.
Adjusted EBITDA is not intended to represent and should not be considered more meaningful than, or as an alternative to, measures of operating performance as determined in accordance with GAAP.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | The Company considers a store to be comparable in the first full month after it has completed
52 weeks of sales. Closed stores become non-comparable during their last partial month of operation. Stores that are relocated are considered comparable stores at the time the relocation is completed. Comparable store sales is not a measure of
financial performance under GAAP. Comparable store sales is not calculated in the same manner by all companies and accordingly is not necessarily comparable to similarly entitled measures of other companies and may not be an appropriate measure for
performance relative to other companies.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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##### Table of Contents

Recent Accounting Pronouncements



FASB Interpretation No. 46, Consolidation of Variable Interest Entities(FIN 46), was issued in January 2003 and
addresses consolidation by business enterprises of variable interest entities. FIN 46 clarifies existing accounting for whether variable interest entities, as defined in FIN 46, should be consolidated in financial statements based upon the
investees ability to finance activities without additional financial support and whether investors possess characteristics of a controlling financial interest. FIN 46 applies immediately to variable interest entities created after January 31,
2003, and to variable interest entities in which an enterprise obtains an interest after that date. For variable interest entities created or acquired after January 31, 2003, the provision was to be applied for the first interim or annual period
beginning after June 15, 2003. In October 2003, the FASB delayed the effective date of this provision until the first interim or annual period ending after December 15, 2003. The Company does not have any variable interest entities and therefore
this adoption did not have any effect on our results of operations or financial position.



In May 2003, SFAS No. 150, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity, was issued. SFAS 150 establishes standards for how an issuer classifies and measures
certain financial instruments with characteristics of both liabilities and equity, and is effective for financial instruments entered into or modified after May 31, 2003 and otherwise is effective July 1, 2003. The Company at September 27, 2003 has
$45.9 million of mandatorily redeemable preferred stock classified as mezzanine equity on the balance sheet. The effect of SFAS No. 150 will be to reclassify this balance from the mezzanine section of the balance sheet to a liability classification
on the balance sheet. In addition, the accretion of the value of the preferred stock will be classified as interest expense instead of reducing retained deficit. In October 2003, the SFAS agreed to defer the effective date of Statement 150 to
entities that have issued shares that are mandatorily redeemable on a fixed date at a fixed principal amount to fiscal periods beginning after December 15, 2003. Accordingly, the Company will adopt this standard beginning October 1, 2004. Had the
standard been adopted during fiscal 2004 and 2003, interest expense for the year ended October 2, 2004 and September 27, 2003 would have been increased by $7,160,000 and $6,191,000, respectively and preferred stock dividends and accretion in the
statements of stockholders equity would have been reduced by the same amount.



ITEM 7a. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK



The Companys Loan and Security Agreement described in note 5 to the consolidated financial statements as well as in the Management Discussion and
Analysis carries interest rate risk. Amounts borrowed under this Agreement bear interest at either Libor plus 1.5%, or at the Companys choice, the lenders reference rate. Should the lenders base rate change, the Companys
interest expense will increase or decrease accordingly. No amounts are currently outstanding under this facility.



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##### Table of Contents

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA



INDEX TO CONSOLIDATED FINANCIAL STATEMENTS



|                                                                                                                                           |  |     
|------------------------------------------------------------------------------------------------------------------------------------------ |  | ----
|                                                                                                                                           |  | Page
|Report of Independent Registered Public Accounting Firm                                                                                    |  | 21  
|                                                                                                                                           | 
|Consolidated Balance Sheets  October 2, 2004 and September 27, 2003                                                                       |  | 22  
|                                                                                                                                           | 
|Consolidated Statements of Income Fiscal Years Ended October 2, 2004, September 27, 2003, and September 28, 2002                          |  | 23  
|                                                                                                                                           | 
|Consolidated Statements of Stockholders Equity (Deficit)  Fiscal Years Ended October 2, 2004, September 27, 2003, and September 28, 2002 |  | 24  
|                                                                                                                                           | 
|Consolidated Statements of Cash Flows  Fiscal Years Ended October 2, 2004, September 27, 2003, and September 28, 2002                     |  | 25  
|                                                                                                                                           | 
|Notes to Consolidated Financial Statements                                                                                                 |  | 26  



20



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##### Table of Contents

Report Of Independent Registered Public Accounting Firm



The Board Of Directors And Stockholders Of Leslies Poolmart, Inc.:



We have audited the accompanying consolidated balance sheets of Leslies Poolmart, Inc. and subsidiaries as of October 2, 2004 and September 27, 2003 and the related consolidated statements of income,
stockholders equity (deficit) and cash flows for each of the three years in the period ended October 2, 2004. These consolidated financial statements are the responsibility of the Companys management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.



We conducted our audits in accordance with the standards of Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial
statements are free of material misstatement. We were not engaged to perform an audit of the Companys internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for
designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Companys internal control over financial reporting. Accordingly, we express no such opinion. An
audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.



In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Leslies
Poolmart, Inc. and subsidiaries at October 2, 2004 and September 27, 2003 and the consolidated results of their operations and their cash flows for each of the three years in the period ended October 2, 2004, in conformity with U.S. generally
accepted accounting principles.



As described in Note 1,
Restatement of Previously Issued Financial Statements, the Company has restated previously issued Financial Statements as of October 2, 2004 and September 27, 2003 and the results of their cash flows for each of the three years in the
period ended October 2, 2004.



/s/ ERNST &
YOUNG LLP



Phoenix, Arizona

November 19, 2004, except for matters discussed in Note 1

as to which our date is April 15, 2005





21



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##### Table of Contents

Leslies Poolmart, Inc.



Consolidated Balance Sheets



(Dollar Amounts
in Thousands)



|                                                                                                                                                                                    |  |                            |         |   |                               |   |         |  
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -------------------------- | ------- | - | ----------------------------- | - | ------- | -
|                                                                                                                                                                                    |  | October 2, 2004 (restated) |         |   | September 27, 2003 (restated) |  
|ASSETS                                                                                                                                                                              | 
|Current assets:                                                                                                                                                                     |  |                            |         |   |                               |   |         |  
|Cash and cash equivalents                                                                                                                                                           |  | $                          | 20,839  |   |                               | $ | 10,022  |  
|Accounts and other receivables, net                                                                                                                                                 |  |                            | 10,505  |   |                               |   | 7,801   |  
|Inventories, net                                                                                                                                                                    |  |                            | 54,765  |   |                               |   | 53,030  |  
|Prepaid expenses and other current assets                                                                                                                                           |  |                            | 1,404   |   |                               |   | 1,301   |  
|Deferred tax assets                                                                                                                                                                 |  |                            | 6,981   |   |                               |   | 6,028   |  
|                                                                                                                                                                                    |  |                            |         |   |                               |   |         |  
|Total current assets                                                                                                                                                                |  |                            | 94,494  |   |                               |   | 78,182  |  
|                                                                                                                                                                                    |  |                           
|Property, plant and equipment, at cost, net of accumulated depreciation                                                                                                             |  |                            | 40,603  |   |                               |   | 42,043  |  
|Goodwill, net                                                                                                                                                                       |  |                            | 7,460   |   |                               |   | 7,460   |  
|Deferred financing costs, net                                                                                                                                                       |  |                            | 1,811   |   |                               |   | 2,069   |  
|Other assets                                                                                                                                                                        |  |                            | 468     |   |                               |   | 466     |  
|                                                                                                                                                                                    |  |                            |         |   |                               |   |         |  
|Total assets                                                                                                                                                                        |  | $                          | 144,836 |   |                               | $ | 130,220 |  
|                                                                                                                                                                                    |  |                            |         |   |                               |   |         |  
|LIABILITIES AND STOCKHOLDERS EQUITY (DEFICIT)                                                                                                                                      |  |                            |         |   |                               |   |         |  
|Current liabilities:                                                                                                                                                                |  |                            |         |   |                               |   |         |  
|Accounts payable                                                                                                                                                                    |  | $                          | 22,247  |   |                               | $ | 26,217  |  
|Accrued expenses                                                                                                                                                                    |  |                            | 30,643  |   |                               |   | 28,739  |  
|Income taxes payable                                                                                                                                                                |  |                            | 8,250   |   |                               |   | 7,816   |  
|                                                                                                                                                                                    |  |                            |         |   |                               |   |         |  
|Total current liabilities                                                                                                                                                           |  |                            | 61,140  |   |                               |   | 62,772  |  
|                                                                                                                                                                                    |  |                           
|Other long term liabilities                                                                                                                                                         |  |                            | 16,917  |   |                               |   | 9,198   |  
|                                                                                                                                                                                    |  |                           
|Series A redeemable preferred stock, $0.001 par value, authorized 2,000,000 shares, Issued and outstanding 46,316 shares at October 2, 2004
and 45,915 shares at September 27, 2003 |  |                            | 46,316  |   |                               |   | 45,915  |  
|                                                                                                                                                                                    |  |                           
|Senior notes                                                                                                                                                                        |  |                            | 59,495  |   |                               |   | 59,495  |  
|Deferred tax liabilities                                                                                                                                                            |  |                            | 59      |   |                               |   | 1,017   |  
|                                                                                                                                                                                    |  |                            |         |   |                               |   |         |  
|Total liabilities                                                                                                                                                                   |  |                            | 183,927 |   |                               |   | 178,397 |  
|                                                                                                                                                                                    |  |                           
|Commitments and contingencies                                                                                                                                                       |  |                            |        |   |                               |   |        |  
|                                                                                                                                                                                    |  |                           
|Stockholders equity (deficit):                                                                                                                                                     |  |                            |         |   |                               |   |         |  
|Common stock, $0.001 par value, authorized 12,000,000 shares, Issued and outstanding 7,369,502 shares at October 2, 2004 and September 27,
2003, respectively                       |  |                            | 7       |   |                               |   | 7       |  
|Stock subscription receivable                                                                                                                                                       |  |                            | (450    | ) |                               |   | (450    | )
|Paid-in capital                                                                                                                                                                     |  |                            | (44,714 | ) |                               |   | (44,714 | )
|Retained earnings (deficit)                                                                                                                                                         |  |                            | 6,066   |   |                               |   | (3,020  | )
|                                                                                                                                                                                    |  |                            |         |   |                               |   |         |  
|Total stockholders deficit                                                                                                                                                         |  |                            | (39,091 | ) |                               |   | (48,177 | )
|                                                                                                                                                                                    |  |                            |         |   |                               |   |         |  
|Total liabilities and stockholders equity (deficit)                                                                                                                                |  | $                          | 144,836 |   |                               | $ | 130,220 |  
|                                                                                                                                                                                    |  |                            |         |   |                               |   |         |  



See accompanying notes to
consolidated financial statements.



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##### Table of Contents

Leslies Poolmart, Inc.



Consolidated Statements of Income



(Dollar
Amounts in Thousands)



|                                                                                                                      |  |                    |         |   |                    |   |         |                    |  |   |         |  
|--------------------------------------------------------------------------------------------------------------------- |  | ------------------ | ------- | - | ------------------ | - | ------- | ------------------ |  | - | ------- | -
|                                                                                                                      |  | Fiscal Years Ended |        
|                                                                                                                      |  | October 2, 2004    |         |   | September 27, 2003 |   |         | September 28, 2002 | 
|Sales                                                                                                                 |  | $                  | 356,041 |   |                    | $ | 327,165 |                    |  | $ | 313,311 |  
|Cost of merchandise and services sold, including warehousing and transportation expenses, and related occupancy costs |  |                    | 183,928 |   |                    |   | 171,219 |                    |  |   | 166,340 |  
|                                                                                                                      |  |                    |         |   |                    |   |         |                    |  |   |         |  
|Gross profit                                                                                                          |  |                    | 172,113 |   |                    |   | 155,946 |                    |  |   | 146,971 |  
|                                                                                                                      |  |                    |        
|Selling, general and administrative expenses                                                                          |  |                    | 137,881 |   |                    |   | 128,290 |                    |  |   | 125,079 |  
|Unusual expense                                                                                                       |  |                    |        |   |                    |   |        |                    |  |   | 1,500   |  
|Amortization of goodwill                                                                                              |  |                    |        |   |                    |   |        |                    |  |   | 319     |  
|                                                                                                                      |  |                    |         |   |                    |   |         |                    |  |   |         |  
|Operating income                                                                                                      |  |                    | 34,232  |   |                    |   | 27,656  |                    |  |   | 20,073  |  
|                                                                                                                      |  |                    |        
|Other (income) expense:                                                                                               |  |                    |         |   |                    |   |         |                    |  |   |         |  
|Interest expense                                                                                                      |  |                    | 7,204   |   |                    |   | 9,598   |                    |  |   | 10,708  |  
|Write-off of debt issuance costs                                                                                      |  |                    |        |   |                    |   | 420     |                    |  |   |        |  
|Interest income                                                                                                       |  |                    | (32     | ) |                    |   | (32     | )                  |  |   | (18     | )
|Loss on disposition of fixed assets                                                                                   |  |                    | 440     |   |                    |   | 497     |                    |  |   | 1,332   |  
|                                                                                                                      |  |                    |         |   |                    |   |         |                    |  |   |         |  
|Total other expense                                                                                                   |  |                    | 7,612   |   |                    |   | 10,483  |                    |  |   | 12,022  |  
|                                                                                                                      |  |                    |         |   |                    |   |         |                    |  |   |         |  
|Income before taxes                                                                                                   |  |                    | 26,620  |   |                    |   | 17,173  |                    |  |   | 8,051   |  
|                                                                                                                      |  |                    |        
|Income tax expense                                                                                                    |  |                    | 10,374  |   |                    |   | 6,830   |                    |  |   | 3,358   |  
|                                                                                                                      |  |                    |         |   |                    |   |         |                    |  |   |         |  
|Net income                                                                                                            |  |                    | 16,246  |   |                    |   | 10,343  |                    |  |   | 4,693   |  
|                                                                                                                      |  |                    |        
|Series A preferred stock dividends and accretion                                                                      |  |                    | 7,160   |   |                    |   | 6,191   |                    |  |   | 5,325   |  
|                                                                                                                      |  |                    |         |   |                    |   |         |                    |  |   |         |  
|Income/(loss) applicable to common shareholders                                                                       |  | $                  | 9,086   |   |                    | $ | 4,152   |                    |  | $ | (632    | )
|                                                                                                                      |  |                    |         |   |                    |   |         |                    |  |   |         |  



See accompanying notes to
consolidated financial statements.



23



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##### Table of Contents

Leslies Poolmart, Inc.



Consolidated Statements of Stockholders Equity (Deficit )



(Dollar Amounts in Thousands, except share amounts)



|                                                 |  |                 |   |                              |        |   |                           |   |      |                             |  |   |                                      |   |  |   |        |   |  |   |         |  
|------------------------------------------------ |  | --------------- | - | ---------------------------- | ------ | - | ------------------------- | - | ---- | --------------------------- |  | - | ------------------------------------ | - |  | - | ------ | - |  | - | ------- | -
|                                                 |  | Common Stock    |   | Stock SubscriptionReceivable |        |   | Additional Paid InCapital |   |      | Retained Earnings/(Deficit) |  |   | Total Stockholders Equity/(Deficit) |  
|                                                 |  | Number ofShares |   |                              | Amount |   |                           |   |     
|Balance, at September 29, 2001                   |  | 7,057,105       |   |                              | $      | 7 |                           | $ | (450 | )                           |  | $ | (45,301                              | ) |  | $ | (3,020 | ) |  | $ | (2,284  | )
|                                                 |  |                 |   |                              |        |  
|Series A preferred stock dividends and accretion |  |                |   |                              |        |  |                           |   |     |                             |  |   |                                     |   |  |   | (5,325 | ) |  |   | (5,325  | )
|Issuance common stock                            |  | 8,333           |   |                              |        |  |                           |   |     |                             |  |   | 17                                   |   |  |   |       |   |  |   | 17      |  
|Net income                                       |  |                |   |                              |        |  |                           |   |     |                             |  |   |                                     |   |  |   | 4,693  |   |  |   | 4,693   |  
|                                                 |  |                 |   |                              |        |   |                           |   |      |                             |  |   |                                      |   |  |   |        |   |  |   |         |  
|Balance, at September 28, 2002                   |  | 7,065,438       |   |                              |        | 7 |                           |   | (450 | )                           |  |   | (45,284                              | ) |  |   | (7,172 | ) |  |   | (52,899 | )
|                                                 |  |                 |   |                              |        |  
|Series A preferred stock dividends and accretion |  |                |   |                              |        |  |                           |   |     |                             |  |   |                                     |   |  |   | (6,191 | ) |  |   | (6,191  | )
|Issuance common stock(1)                         |  | 390,270         |   |                              |        |  |                           |   |     |                             |  |   | 1,070                                |   |  |   |       |   |  |   | 1,070   |  
|Repurchase common stock                          |  | (86,206         | ) |                              |        |   |                           |   |      |                             |  |   | (500                                 | ) |  |   |       |   |  |   | (500    | )
|Net income                                       |  |                |   |                              |        |  |                           |   |     |                             |  |   |                                     |   |  |   | 10,343 |   |  |   | 10,343  |  
|                                                 |  |                 |   |                              |        |   |                           |   |      |                             |  |   |                                      |   |  |   |        |   |  |   |         |  
|Balance, at September 27, 2003                   |  | 7,369,502       |   |                              |        | 7 |                           |   | (450 | )                           |  |   | (44,714                              | ) |  |   | (3,020 | ) |  |   | (48,177 | )
|                                                 |  |                 |   |                              |        |  
|Series A preferred stock dividends and accretion |  |                |   |                              |        |  |                           |   |     |                             |  |   |                                     |   |  |   | (7,160 | ) |  |   | (7,160  | )
|Net Income                                       |  |                |   |                              |        |  |                           |   |     |                             |  |   |                                     |   |  |   | 16,246 |   |  |   | 16,246  |  
|                                                 |  |                 |   |                              |        |   |                           |   |      |                             |  |   |                                      |   |  |   |        |   |  |   |         |  
|Balance, at October 2, 2004                      |  | 7,369,502       |   |                              | $      | 7 |                           | $ | (450 | )                           |  | $ | (44,714                              | ) |  | $ | 6,066  |   |  | $ | (39,091 | )
|                                                 |  |                 |   |                              |        |   |                           |   |      |                             |  |   |                                      |   |  |   |        |   |  |   |         |  

---

|(1) | Net of related income tax benefit of $655,000.
|--- | ----------------------------------------------



See accompanying notes to consolidated financial statements.



24



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##### Table of Contents

Leslies Poolmart, Inc.



Consolidated Statements of Cash Flows



(Dollar
Amounts in Thousands)



|                                                                                  |  |                            |         |   |                               |   |         |                              |  |   |        |  
|--------------------------------------------------------------------------------- |  | -------------------------- | ------- | - | ----------------------------- | - | ------- | ---------------------------- |  | - | ------ | -
|                                                                                  |  | Fiscal Years Ended         |        
|                                                                                  |  | October 2, 2004 (restated) |         |   | September 27, 2003 (restated) |   |         | September 28,2002 (restated) | 
|OPERATING ACTIVITIES:                                                             |  |                            |         |   |                               |   |         |                              |  |   |        |  
|Net income                                                                        |  | $                          | 16,246  |   |                               | $ | 10,343  |                              |  | $ | 4,693  |  
|Adjustments to reconcile net income to net cash provided by operating activities: |  |                            |         |   |                               |   |         |                              |  |   |        |  
|Depreciation and amortization                                                     |  |                            | 11,281  |   |                               |   | 10,186  |                              |  |   | 9,631  |  
|Amortization of loan fees and discounts                                           |  |                            | 518     |   |                               |   | 1,174   |                              |  |   | 664    |  
|Allowance for doubtful accounts                                                   |  |                            | 316     |   |                               |   | 660     |                              |  |   | 437    |  
|Deferred income taxes                                                             |  |                            | (1,911  | ) |                               |   | 855     |                              |  |   | (2,263 | )
|Loss on disposition of assets                                                     |  |                            | 440     |   |                               |   | 497     |                              |  |   | 1,332  |  
|Changes in operating assets and liabilities:                                      |  |                            |         |   |                               |   |         |                              |  |   |        |  
|Accounts and other receivables                                                    |  |                            | (3,020  | ) |                               |   | (1,063  | )                            |  |   | (385   | )
|Inventories                                                                       |  |                            | (1,735  | ) |                               |   | 2,510   |                              |  |   | 395    |  
|Prepaid expenses and other current assets                                         |  |                            | (103    | ) |                               |   | (66     | )                            |  |   | (59    | )
|Other assets                                                                      |  |                            | (2      | ) |                               |   | 92      |                              |  |   | (74    | )
|Accounts payable and accrued expenses                                             |  |                            | (1,106  | ) |                               |   | 7,966   |                              |  |   | 4,040  |  
|Income taxes payable                                                              |  |                            | 434     |   |                               |   | (409    | )                            |  |   | 2,226  |  
|                                                                                  |  |                            |         |   |                               |   |         |                              |  |   |        |  
|Net cash provided by operating activities                                         |  |                            | 21,358  |   |                               |   | 32,745  |                              |  |   | 20,637 |  
|                                                                                  |  |                            |         |   |                               |   |         |                              |  |   |        |  
|INVESTING ACTIVITIES:                                                             |  |                            |         |   |                               |   |         |                              |  |   |        |  
|Purchase of property, plant and equipment                                         |  |                            | (10,899 | ) |                               |   | (8,616  | )                            |  |   | (8,472 | )
|Proceeds from disposition of property, plant and equipment                        |  |                            | 618     |   |                               |   | 9       |                              |  |   | 20     |  
|                                                                                  |  |                            |         |   |                               |   |         |                              |  |   |        |  
|Net cash used in investing activities                                             |  |                            | (10,281 | ) |                               |   | (8,607  | )                            |  |   | (8,452 | )
|                                                                                  |  |                            |         |   |                               |   |         |                              |  |   |        |  
|FINANCING ACTIVITIES:                                                             |  |                            |         |   |                               |   |         |                              |  |   |        |  
|Payments of long-term debt                                                        |  |                            |        |   |                               |   | (30,519 | )                            |  |   | (974   | )
|Purchase of common stock                                                          |  |                            |        |   |                               |   | (500    | )                            |  |   |       |  
|Payments of deferred financing cost                                               |  |                            | (260    | ) |                               |   | (2,163  | )                            |  |   |       |  
|Proceeds from issuance of common stock, net                                       |  |                            |        |   |                               |   | 1,070   |                              |  |   | 17     |  
|                                                                                  |  |                            |         |   |                               |   |         |                              |  |   |        |  
|Net cash used in financing activities                                             |  |                            | (260    | ) |                               |   | (32,112 | )                            |  |   | (957   | )
|                                                                                  |  |                            |         |   |                               |   |         |                              |  |   |        |  
|NET INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS                              |  |                            | 10,817  |   |                               |   | (7,974  | )                            |  |   | 11,228 |  
|CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR                                    |  |                            | 10,022  |   |                               |   | 17,996  |                              |  |   | 6,768  |  
|                                                                                  |  |                            |         |   |                               |   |         |                              |  |   |        |  
|CASH AND CASH EQUIVALENTS AT END OF YEAR                                          |  | $                          | 20,839  |   |                               | $ | 10,022  |                              |  | $ | 17,996 |  
|                                                                                  |  |                            |         |   |                               |   |         |                              |  |   |        |  



See accompanying notes to
consolidated financial statements.



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Leslies Poolmart, Inc.



Notes to Consolidated Financial Statements



1. Restatement of Previously Issued Financial Statements



Following a review of the Companys lease accounting, the Company has
reclassified tenant improvement allowances from a contra asset in property, plant and equipment, net to accrued expenses in the consolidated balance sheets. The amortization of the tenant improvement allowances has also been reclassified from a
reduction of depreciation and amortization expense to a reduction of occupancy expense in the consolidated statements of income. Finally, the receipt of tenant improvement allowances has been reclassified in the consolidated statement of cash flows
by increasing purchase of property, plant and equipment, and increasing cash provided by operating activities.



The following table reflects the effect of the restatement on the Consolidated Balance Sheet (in thousands):



|                                                                        |  |                       |         |                          |   |                       |  |            |         |  |   |        
|----------------------------------------------------------------------- |  | --------------------- | ------- | ------------------------ | - | --------------------- |  | ---------- | ------- |  | - | -------
|                                                                        |  | As of October 2, 2004 |         | As of September 27, 2003
|                                                                        |  | As PreviouslyReported |         | AsRestated               |   | As PreviouslyReported |  | AsRestated
|Selected Balance Sheet Data:                                            |  |                       |         |                          |   |                       |  |            |         |  |   |        
|Property, plant and equipment, at cost, net of accumulated depreciation |  | $                     | 38,359  |                          | $ | 40,603                |  | $          | 40,759  |  | $ | 42,043 
|Total assets                                                            |  |                       | 142,592 |                          |   | 144,836               |  |            | 128,936 |  |   | 130,220
|Other long term liabilities                                             |  |                       | 14,673  |                          |   | 16,917                |  |            | 7,914   |  |   | 9,198  
|Total liabilities                                                       |  |                       | 181,683 |                          |   | 183,927               |  |            | 177,113 |  |   | 178,397
|Total liabilities and stockholders equity (deficit)                    |  |                       | 142,592 |                          |   | 144,836               |  |            | 128,936 |  |   | 130,220



The following table
reflects the effect of the restatement on the Consolidated statements of Cash Flows (in thousands):



|                                                 |  |                        |        |   |                    |   |         |                        |  |   |             |   |  |                        |        |   |             |   |        |   |  |   |        |  
|------------------------------------------------ |  | ---------------------- | ------ | - | ------------------ | - | ------- | ---------------------- |  | - | ----------- | - |  | ---------------------- | ------ | - | ----------- | - | ------ | - |  | - | ------ | -
|                                                 |  | Fiscal Years Ended     |       
|                                                 |  | October 2, 2004        |        |   | September 27, 2003 |   |         | September 28, 2002     | 
|                                                 |  | As Previously Reported |        |   | As Restated        |   |         | As Previously Reported |  |   | As Restated |   |  | As Previously Reported |        |   | As Restated |  
|Selected Cash Flow Data:                         |  |                        |        |   |                    |   |         |                        |  |   |             |   |  |                        |        |   |             |   |        |   |  |   |        |  
|Depreciation and amortization                    |  | $                      | 10,628 |   |                    | $ | 11,281  |                        |  | $ | 9,661       |   |  | $                      | 10,186 |   |             | $ | 9,044  |   |  | $ | 9,631  |  
|Accounts payable, expenses and other liabilities |  |                        | (2,066 | ) |                    |   | (1,106  | )                      |  |   | 7,982       |   |  |                        | 7,966  |   |             |   | 4,195  |   |  |   | 4,040  |  
|Net cash provided by operating activities        |  |                        | 19,745 |   |                    |   | 21,358  |                        |  |   | 32,236      |   |  |                        | 32,745 |   |             |   | 20,205 |   |  |   | 20,637 |  
|Purchase of property, plant and equipment        |  |                        | (9,286 | ) |                    |   | (10,899 | )                      |  |   | (8,107      | ) |  |                        | (8,616 | ) |             |   | (8,040 | ) |  |   | (8,472 | )
|Net cash used in investing activities            |  |                        | (8,668 | ) |                    |   | (10,281 | )                      |  |   | (8,098      | ) |  |                        | (8,607 | ) |             |   | (8,020 | ) |  |   | (8,452 | )



Reclassification



The effect of the adoption of SFAS No. 150 has been
reflected in each balance sheet presented as a reclassification of redeemable preferred stock balance from the mezzanine section of the balance sheet to a long term liability classification.



2. Business and Operations



Leslies Poolmart, Inc. (the Company) is a specialty retailer of
swimming pool supplies and related products. As of October 2, 2004, the Company marketed its products under the trade name Leslies Swimming Pool Supplies through 474



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Leslies Poolmart, Inc.



Notes to Consolidated Financial Statements



retail stores in 36 states and through mail order catalogs sent to selected swimming pool owners nationwide. The Company also repackages certain bulk
chemical products for retail sale. The Companys business is highly seasonal as the majority of its sales and all of its operating profits are generated in the quarters ending in June and September.



On June 11, 1997, Leslies Poolmart (a California corporation 
Leslies California) reincorporated in Delaware by merging into a wholly-owned Delaware subsidiary (the Reincorporation), changed its name to Leslies Poolmart, Inc. and merged Poolmart USA Inc., a newly-formed
corporation, with and into the Company (the Recapitalization). As a result of the Recapitalization, (i) each outstanding share of common stock of Leslies California was converted into $2.90 cash (other than 1,797,525 shares owned
primarily by members of management); and (ii) outstanding options covering approximately 4,150,000 shares of common stock, including those not yet vested, were exercised and retired for payment of the difference between the exercise price and $2.90
per share. The total value of the shares and options cashed out approximated $94,300,000, plus $5,229,000 in expenses associated with this transaction. In connection with the Recapitalization, the Company changed the authorized capital of the
Company to 12,000,000 shares of common stock with a $0.001 par value and 2,000,000 shares of preferred stock with a $0.001 par value.



In order to finance the merger, the Company issued $90.0 million of its 10.375% Senior Notes due 2003 (Senior Notes due in 2004) and sold
5,370,690 shares of its common stock for proceeds of $15.6 million. As indicated above, certain directors and members of management converted some of the Leslies California common shares which they owned into shares of the Companys
common stock.



Also in connection with the Recapitalization,
the Company issued 28,000 shares of its Series A Preferred Stock of the Company, par value $0.001 per share, at $1,000 per share for a total consideration of $28.0 million, consisting of cash and an exchange of the $10.0 million principal amount of
Convertible Subordinated Debentures of Leslies California held by a major supplier. In connection with this transaction, the holder of the Series A Preferred Stock received Warrants to purchase up to 15.0% of the shares of the Companys
common stock at a purchase price of $0.01 per share (subject to adjustment) for a period of ten years.



3. Summary of Significant Accounting Policies



Principles of Consolidation



The consolidated financial statements of the Company include Leslies Poolmart, Inc., and its wholly owned subsidiaries, LPM, Manufacturing Inc., Sandys Pool Supply, Inc. and Blackwood & Simmons, Inc. All significant
inter-company transactions and accounts have been eliminated.



Fiscal Periods



The Company fiscal year ends
on the Saturday closest to September 30. The fiscal year ended on October 2, 2004, included 53 weeks, and the fiscal years ended September 27, 2003, and September 28, 2002 included 52 weeks.



Cash and Cash Equivalents



The Company considers all investments with a maturity of three months or
less when purchased to be cash equivalents.



Accounts and
Other Receivables, Net



Accounts and other receivables
include allowances for doubtful accounts of $928,000, $1,125,000 and $717,000 at October 2, 2004, September 27, 2003 and September 28, 2002, respectively.





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Leslies Poolmart, Inc.



Notes to Consolidated Financial Statements



Allowance for doubtful accounts consists of the following:



|                              |  |                               |           |                        |   |            |  |   |                          |   |  |   |          
|----------------------------- |  | ----------------------------- | --------- | ---------------------- | - | ---------- |  | - | ------------------------ | - |  | - | ---------
|                              |  | Balance atbeginning ofperiod  |           | Additions              |   | Deductions |  |   | Balance at end of period
|                              |  | Charged to costs and expenses |           | Write-off of Bad debts |   |           
|Balance at September 28, 2002 |  | $                             | 422,000   |                        | $ | 437,000    |  | $ | (142,000                 | ) |  | $ | 717,000  
|Balance at September 27, 2003 |  |                               | 717,000   |                        |   | 660,000    |  |   | (252,000                 | ) |  |   | 1,125,000
|Balance at October 2, 2004    |  |                               | 1,125,000 |                        |   | 316,000    |  |   | (513,000                 | ) |  |   | 928,000  



Inventories, Net



Inventories are stated at the lower of cost or market.
The Company values inventory using the weighted average method.



Inventory reserves consist of the following:



|                              |  |                               |           |                        |   |            |  |   |                          |   |  |   |          
|----------------------------- |  | ----------------------------- | --------- | ---------------------- | - | ---------- |  | - | ------------------------ | - |  | - | ---------
|                              |  | Balance atbeginning ofperiod  |           | Additions              |   | Deductions |  |   | Balance at end of period
|                              |  | Charged to costs and expenses |           | Write-off of Bad debts |   |           
|Balance at September 28, 2002 |  | $                             | 142,000   |                        | $ | 586,000    |  | $ | (234,000                 | ) |  | $ | 494,000  
|Balance at September 27, 2003 |  |                               | 494,000   |                        |   | 1,130,000  |  |   | (433,000                 | ) |  |   | 1,191,000
|Balance at October 2, 2004    |  |                               | 1,191,000 |                        |   | 420,000    |  |   | (364,000                 | ) |  |   | 1,247,000



Property, Plant and
Equipment



Property, plant and equipment are stated at
cost. Costs of normal maintenance and repairs are charged to expense as incurred.



Major replacements or improvements of property, plant and equipment are capitalized. When items are sold or otherwise disposed of, the cost and related accumulated depreciation or amortization are removed from the
accounts, and any resulting gain or loss is included in the statements of income.



Depreciation and amortization are computed using the straight-line method (considering appropriate salvage values) based on the following estimated average useful lives:



|                                  |  |           
|--------------------------------- |  | ----------
|Buildings and improvements        |  | 5-39 years
|Vehicles, machinery and equipment |  | 3-10 years
|Office furniture and equipment    |  | 3-7 years 
|Leasehold improvements            |  | 5-10 years



Goodwill



The excess of the acquisition price over the fair value
of the net assets at the date of acquisition is included in the accompanying consolidated balance sheets as Goodwill. In accordance with the provisions of SFAS No. 141 Business



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Leslies Poolmart, Inc.



Notes to Consolidated Financial Statements



Combinations and SFAS No. 142 Goodwill and Other Intangible Assets, the Company applied the new rules on accounting for goodwill and other intangible assets
deemed to have indefinite lives beginning on September 29, 2002. The Company also performed the required impairment tests of goodwill and indefinite lived intangible assets and there was no impairment identified. The Company no longer amortizes its
goodwill under SFAS No. 142, but does subject its goodwill to periodic assessments as defined therein. The balance recorded at October 2, 2004 and September 27, 2003 was net of accumulated amortization of $3.1 million. The Company recorded no
amortization for the years ended October 2, 2004 and September 27, 2003 and $319,000 for the year-ended September 28, 2002.



Deferred Financing Costs



In connection with issuing the Senior Notes due 2004 and entering into a credit agreement in 1997, the Company paid $3.7 million in financing costs that
are being deferred and amortized over the lives of the corresponding agreements. During fiscal 2003, the Company recorded $2.2 million in costs associated with the exchange of $59.5 million of Senior Notes due 2004 and concurrently expensed $420,000
of unamortized costs associated with the original 1997 Senior Note issuance. The balance recorded at October 2, 2004 and September 27, 2003 was net of accumulated amortization of $1.3 million and $744,000, respectively.



Income Taxes



The Company provides for deferred income taxes relating to timing
differences in the recognition of income and expense items (primarily depreciation and amortization) for financial and tax reporting purposes. Deferred taxes at October 2, 2004 and September 27, 2003 include a provision for the differences between
tax and financial asset values except that deferred taxes were not provided with respect to amounts allocated to goodwill.



Sales



Revenue on retail sales is recognized upon purchase by the customer. Revenue on services is recognized as services are performed and the fee is fixed or
determinable and collection is probable. Terms are customarily FOB shipping point or point of sale, net of related discounts. The Company does not provide an estimated allowance for sales returns as they are deemed to be immaterial.



Cost of Sales



Included in cost of sales are the costs of services and purchased goods,
chemical repackaging costs and related distribution costs. The Company recognizes consideration received from vendors at the time the obligations to purchase products or perform services have been completed. These items are recorded as a reduction
in cost of goods sold in the statement of income.



Shipping
and Handing Costs



The Company records shipping and
handling costs paid by customers as revenue. Likewise, the actual costs for shipping and handling are charged to cost of sales.



Advertising



The Company expenses advertising during the period of the event. Advertising expense for the years ended October 2, 2004, September 27, 2003, and
September 28, 2002 was approximately $8.3 million, $7.6 million, and $7.4 million, respectively. These amounts are net of cooperative advertising of $412,000, 235,000 and $0.0 for the years ended October 2, 2004, September 27, 2003, and September
28, 2002, respectively.



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Leslies Poolmart, Inc.



Notes to Consolidated Financial Statements



Stock Based Compensation



The Company grants stock options for a fixed number of shares to employees and directors with an exercise price equal to the
fair market value of the shares at the date of grant. The Company accounts for such stock option grants using the intrinsic-value method of accounting in accordance with Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock
Issued to Employees, and related interpretations, and the disclosure requirements of Statement of Financial Accounting Standards (SFAS) No. 123, Accounting for Stock-Based Compensation and SFAS No. 148, Accounting for Stock-Based
Compensation  Transition and Disclosure. Under APB 25, the Company generally recognizes no compensation expense with respect to such awards. Also, the Company does not record any compensation expense in connection with our stock Option
Plan. If stock options had been accounted for consistent with SFAS No. 123, these amounts would be amortized on a straight-line basis as compensation expense over the average holding period of the options and the Companys net income would have
decreased by $142,000 and $99,000 for the fiscal years ended 2004 and 2003, respectively and the Companys net loss would have increased by $96,000 in fiscal year ended 2002.



Pro forma results disclosed are based on the provisions of SFAS 123 using the Black-Scholes option valuation model and are
not likely to be representative of the effects on pro forma net income for future years. In addition, the Black-Scholes option valuation model was developed for use in estimating the fair value of traded options, which have no vesting restrictions
and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions including the expected stock price volatility. Because the Companys stock options have characteristics significantly different
from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in our opinion, the estimating models do not necessarily provide a reliable single measure of the fair value of our
stock options.



Fair Value of Financial Statements



The fair value of the $59.5 million Senior Notes due 2008
using quoted market prices as of October 2, 2004 is $66.9 million. The carrying amounts of other long-term debt approximate fair value because either the interest rate fluctuates based on market rates or interest rates appear to approximate market
rates for similar instruments. The fair value estimates are subjective in nature and involve uncertainties and matters of judgment and therefore, cannot be determined with precision. Changes in assumptions could significantly affect these estimates.



Use of Estimates in the Preparation of Consolidated
Financial Statements



The preparation of financial
statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of expenses during the reporting period. Actual results could differ from those estimates.



Recent Accounting Pronouncements.



FASB Interpretation No. 46, Consolidation of Variable Interest Entities(FIN 46), was issued in January 2003 and
addresses consolidation by business enterprises of variable interest entities. FIN 46 clarifies existing accounting for whether variable interest entities, as defined in FIN 46, should be consolidated in financial statements based upon the
investees ability to finance activities without additional financial support and whether investors possess characteristics of a controlling financial interest. FIN 46 applies immediately to variable interest entities created after January 31,
2003, and to variable interest entities in which an enterprise obtains an interest after that date. For variable interest entities created or acquired after January 31, 2003, the provision was to be applied for the first interim or annual period
beginning after June 15, 2003. In October 2003, the FASB delayed the effective date of this provision until the first interim or annual period ending after December 15, 2003. The Company does not have any variable interest entities and therefore
this adoption will not have any effect on our results of operations or financial position.



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Leslies Poolmart, Inc.



Notes to Consolidated Financial Statements



In May 2003, SFAS No. 150, Accounting for Certain Financial Instruments with Characteristics of
both Liabilities and Equity, was issued. SFAS 150 establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity, and is effective for financial instruments
entered into or modified after May 31, 2003 and otherwise is effective July 1, 2003. The Company at September 27, 2003 has $45.9 million of mandatorily redeemable preferred stock classified as mezzanine equity on the balance sheets. The effect of
SFAS No. 150 will be to reclassify this balance from the mezzanine section of the balance sheet to a liability classification on the balance sheet. In addition, the accretion of the value of the preferred stock will be classified as interest expense
instead of reducing retained deficit. In October 2003, the SFAS agreed to defer the effective date of Statement 150 to entities that have issued shares that are mandatorily redeemable on a fixed date at a fixed principal amount to fiscal periods
beginning after December 15, 2003. Accordingly, the Company will adopt this standard beginning October 1, 2004. Had the standard been adopted, interest expense for the fiscal years ended October 2, 2004 and September 27, 2003 would have been
increased by $7,160,000 and $6,191,000, respectively and preferred stock dividends and accretion in the statements of stockholders equity would have been reduced by the same amount.



4. Inventories



Inventories consist of the following:



|                           |  |                |            |   |                   |   |            |  
|-------------------------- |  | -------------- | ---------- | - | ----------------- | - | ---------- | -
|                           |  | October 2,2004 |            |   | September 27,2003 |  
|Raw materials and supplies |  | $              | 355,000    |   |                   | $ | 371,000    |  
|Finished goods             |  |                | 55,657,000 |   |                   |   | 53,850,000 |  
|Reserve                    |  |                | (1,247,000 | ) |                   |   | (1,191,000 | )
|                           |  |                |            |   |                   |   |            |  
|Total Inventories          |  | $              | 54,765,000 |   |                   | $ | 53,030,000 |  
|                           |  |                |            |   |                   |   |            |  



5. Property, Plant and Equipment



Property, plant and equipment consists of the following:



|                                                |  |                            |             |                              |   |           
|----------------------------------------------- |  | -------------------------- | ----------- | ---------------------------- | - | ----------
|                                                |  | October 2, 2004 (restated) |             | September 27,2003 (restated)
|Land                                            |  | $                          | 5,865,000   |                              | $ | 6,215,000 
|Buildings and addresses                         |  |                            | 8,571,000   |                              |   | 8,815,000 
|Vehicles, machinery and equipment               |  |                            | 4,540,000   |                              |   | 4,240,000 
|Leasehold improvements                          |  |                            | 46,981,000  |                              |   | 41,053,000
|Office furniture, equipment and other           |  |                            | 33,631,000  |                              |   | 30,911,000
|Construction-in-process                         |  |                            | 672,000     |                              |   | 1,536,000 
|                                                |  |                            |             |                              |   |           
|                                                |  |                            | 100,260,000 |                              |   | 92,770,000
|                                                |  |                           
|Less  accumulated deprecation and amortization |  |                            | 59,657,000  |                              |   | 50,727,000
|                                                |  |                            |             |                              |   |           
|Total Property, Plant and Equipment             |  | $                          | 40,603,000  |                              | $ | 42,043,000
|                                                |  |                            |             |                              |   |           



6. Loan and Security Agreement



In June of 2000, the Company entered into a Loan and
Security Agreement (the Agreement) with Wells Fargo Retail Finance LLC. Under the Agreement, maximum borrowings were $65.0 million with the minimum amount available not to fall below $40.0 million, reduced by outstanding letters of
credit, and with a maturity date set at January 31, 2004. Under the Agreement, maximum borrowings are limited as a function of inventory or calculated EBITDA rates as defined in the Agreement.



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Leslies Poolmart, Inc.



Notes to Consolidated Financial Statements



On October 31, 2003, the Company amended the Agreement (the Amended Agreement) with Wells
Fargo Retail Finance LLC. The Amended Agreement extends the maturity date to January 15, 2008 and allows the Company to optionally increase its maximum borrowing to $75.0 million. The Amended Agreement contains certain financial covenants that
include minimum calculated EBITDA levels, maximum capital expenditure amounts, Fixed Charge Coverage Ratio, and Senior Leverage Ratio. As of October 2, 2004, the Company was in compliance with these covenants. At October 2, 2004 and September 27,
2003, there were no borrowings outstanding under the Agreement. Borrowings under the Agreement accrue interest at the lenders reference rate or at LIBOR plus the applicable LIBOR rate margin. Based on the LIBOR rate margin at October 2, 2004,
the interest rate was 3.3%. The margins are determined by calculated LTM EBITDA rates as defined in the Agreement.



7. Senior Notes



On June 11, 1997, the Company issued $90.0 million aggregate principal amount of its 10.375 percent Senior Notes due July 15, 2004 (the 2004
Notes). The 2004 Notes were issued under an indenture by and between the Company and U.S. Trust Company of California, N.A., as trustee.



Interest on the 2004 Notes accrued at the rate of 10.375 percent per annum and was payable semi-annually in arrears on each January 15 and July 15
commencing on January 15, 1998. The 2004 Notes were redeemable, in whole or in part, at the option of the Company on or after July 15, 2001, at the specified redemption prices.



On May 16, 2003, the Company entered into exchange agreements with holders of a majority in principal amount of our 2004
Notes pursuant to which the Company exchanged 10.375 percentSenior Notes due 2008, Series A, (the Series A
Notes) for the 2004 Notes held by them. The exchanges of the 2004 Notes closed on May 21, 2003. In connection with those exchanges, the Company entered into several registration rights agreements which required the exchange of the Series A
Notes for registered 10.375 percent Notes due 2008, Series B (the Series B Notes). On September 8, 2003, the Company completed its offer to exchange up to $56.5 million aggregate principal amount of Series A Notes for the Series B Notes
and a total of $3.0 million of Series A Notes remained outstanding. The remaining $30.5 million of the 2004 Notes were redeemed with cash.



The Series A Notes and the Series B Notes are generally unsecured obligations of the Company and will be subordinated to any secured indebtedness of the
Company. In the event of a change of control, the Company will be required to make an offer to purchase all outstanding Notes at a price equal to 101 percent of the principal amount thereof plus accrued and unpaid interest, if any, to the date of
purchase.



The Series A Notes and the Series B Notes were
issued under an indenture by and between the Company and the Bank of New York, as trustee (the Indenture). The Indenture contains certain covenants which include, among other matters, limitations on the incurrence of additional
indebtedness and the payment of dividends. As of October 2, 2004, the Company was in compliance with these covenants.



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##### Table of Contents

Leslies Poolmart, Inc.



Notes to Consolidated Financial Statements



8. Leases



The Company leases certain store, office, distribution and manufacturing facilities under operating leases which expire at various dates through 2013.
Lease agreements generally provide for increases related to cost of living indices and require the Company to pay for property taxes, repairs and insurance. Future annual minimum lease payments at October 2, 2004 are as follows:



|           |  |   |            
|---------- |  | - | -----------
|2005       |  | $ | 30,821,000 
|2006       |  |   | 25,521,000 
|2007       |  |   | 20,907,000 
|2008       |  |   | 15,294,000 
|2009       |  |   | 9,919,000  
|Thereafter |  |   | 4,951,000  
|           |  |   |            
|           |  | $ | 107,413,000
|           |  |   |            



Certain leases are
renewable at the option of the Company for periods of one to ten years. Rent expense charged against income totaled $26.5 million, $24.3 million, and $23.8 million in fiscal years 2004, 2003 and 2002 respectively. Five leases provided for rent
contingent on sales exceeding specific amounts.





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##### Table of Contents

Leslies Poolmart, Inc.



Notes to Consolidated Financial Statements



9. Income Taxes



The provision/(benefit) for income taxes is comprised of the following:



|         |  |                               |            |   |                                  |   |                                  |  |   |            |  
|-------- |  | ----------------------------- | ---------- | - | -------------------------------- | - | -------------------------------- |  | - | ---------- | -
|         |  | 53 Weeks EndedOctober 2, 2004 |            |   | 52 Weeks EndedSeptember 27, 2003 |   | 52 Weeks EndedSeptember 28, 2002 | 
|Federal: |  |                               |            |   |                                  |   |                                  |  |   |            |  
|         |  |                               |           
|Current  |  | $                             | 9,722,000  |   |                                  | $ | 4,706,000                        |  | $ | 4,507,000  |  
|Deferred |  |                               | (1,512,000 | ) |                                  |   | 673,000                          |  |   | (1,860,000 | )
|         |  |                               |            |   |                                  |   |                                  |  |   |            |  
|         |  | $                             | 8,210,000  |   |                                  | $ | 5,379,000                        |  | $ | 2,647,000  |  
|         |  |                               |            |   |                                  |   |                                  |  |   |            |  
|State:   |  |                               |            |   |                                  |   |                                  |  |   |            |  
|         |  |                               |           
|Current  |  | $                             | 2,563,000  |   |                                  | $ | 1,269,000                        |  | $ | 1,114,000  |  
|Deferred |  |                               | (399,000   | ) |                                  |   | 182,000                          |  |   | (403,000   | )
|         |  |                               |            |   |                                  |   |                                  |  |   |            |  
|         |  |                               | 2,164,000  |   |                                  |   | 1,451,000                        |  |   | 711,000    |  
|         |  |                               |            |   |                                  |   |                                  |  |   |            |  
|Total    |  | $                             | 10,374,000 |   |                                  | $ | 6,830,000                        |  | $ | 3,358,000  |  
|         |  |                               |            |   |                                  |   |                                  |  |   |            |  



A reconciliation of
the provision for income taxes to the amount computed at the federal statutory rate is as follows:



|                                     |  |                               |            |   |                                  |   |                                  |  |   |          
|------------------------------------ |  | ----------------------------- | ---------- | - | -------------------------------- | - | -------------------------------- |  | - | ---------
|                                     |  | 53 Weeks EndedOctober 2, 2004 |            |   | 52 Weeks EndedSeptember 27, 2003 |   | 52 Weeks EndedSeptember 28, 2002
|Federal income tax at statutory rate |  | $                             | 9,317,000  |   |                                  | $ | 5,839,000                        |  | $ | 2,737,000
|Permanent differences                |  |                               | 36,000     |   |                                  |   | 33,000                           |  |   | 151,000  
|State taxes, net of federal benefit  |  |                               | 1,407,000  |   |                                  |   | 958,000                          |  |   | 470,000  
|Other                                |  |                               | (386,000   | ) |                                  |   |                                 |  |   |         
|                                     |  |                               |            |   |                                  |   |                                  |  |   |          
|                                     |  | $                             | 10,374,000 |   |                                  | $ | 6,830,000                        |  | $ | 3,358,000
|                                     |  |                               |            |   |                                  |   |                                  |  |   |          



The tax effect of
temporary differences which give rise to significant portions of the deferred tax asset and liability are summarized below.



|                              |  |                     |            |   |                         |   |         |                    |  |   |                         |   |  |   |            |  
|----------------------------- |  | ------------------- | ---------- | - | ----------------------- | - | ------- | ------------------ |  | - | ----------------------- | - |  | - | ---------- | -
|                              |  | Fiscal 2004         |            |   | Fiscal 2003             |  
|                              |  | Deferred Tax Assets |            |   | Deferred TaxLiabilities |   |         | Deferred TaxAssets |  |   | Deferred TaxLiabilities |  
|Depreciation and amortization |  | $                   | 988,000    |   |                         | $ |        |                    |  | $ | 687,000                 |   |  | $ |           |  
|State income taxes            |  |                     |           |   |                         |   |        |                    |  |   |                        |   |  |   |           |  
|Inventory                     |  |                     |           |   |                         |   | (59,000 | )                  |  |   |                        |   |  |   | (317,000   | )
|Reserves and other accruals   |  |                     | 4,095,000  |   |                         |   |        |                    |  |   | 3,012,000               |   |  |   |           |  
|Deferred rent                 |  |                     | 597,000    |   |                         |   |        |                    |  |   | 629,000                 |   |  |   |           |  
|Compensation accruals         |  |                     | 733,000    |   |                         |   |        |                    |  |   | 1,115,000               |   |  |   |           |  
|Net operating loss            |  |                     | 2,346,000  |   |                         |   |        |                    |  |   | 2,308,000               |   |  |   |           |  
|Other                         |  |                     | 490,000    |   |                         |   |        |                    |  |   | 481,000                 |   |  |   | (700,000   | )
|Valuation allowance           |  |                     | (2,268,000 | ) |                         |   |        |                    |  |   | (2,204,000              | ) |  |   |           |  
|                              |  |                     |            |   |                         |   |         |                    |  |   |                         |   |  |   |            |  
|                              |  | $                   | 6,981,000  |   |                         | $ | (59,000 | )                  |  | $ | 6,028,000               |   |  | $ | (1,017,000 | )
|                              |  |                     |            |   |                         |   |         |                    |  |   |                         |   |  |   |            |  



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Leslies Poolmart, Inc.



Notes to Consolidated Financial Statements



The Company has federal net operating losses (NOL) of $6.7 million available to offset future tax
liabilities through 2007. The losses are subject to Internal Revenue Code Section 382 which limits the annual utilization of NOLs after an ownership change. The Companys annual Section 382 limitation is approximately $83,000. As such,
approximately $6.5 million of these NOLs will expire as worthless. The Company has recorded a valuation allowance amount of $2,268,000 and $2,204,000 as of October 2, 2004 and September 27, 2003, respectively.



10. Contingencies



The Company is a defendant in lawsuits or potential claims encountered in the normal course of business; such matters are
being vigorously defended. In the opinion of management, the resolutions of these matters will not have a material effect on the Companys financial position or results of operations.



On January 31, 2002, a former employee brought a purported class action
lawsuit against the Company in California Superior Court for the County of Los Angeles. The complaint alleged failure to pay overtime wages, waiting time penalties and unfair business practices and sought monetary and injunctive relief. A settlement
totaling $1.2 million was reached by the parties during a mediation on April 2, 2002. The Court approved the settlement in a final fairness hearing on August 20, 2002. During the second quarter of 2002, the Company reserved a total of $1.5 million
for this settlement and its related legal and other expenses, and for which this amount was subsequently paid. As of October 2, 2004 there were no other costs associated with this matter.



The Companys general liability insurance program and employee group medical plan have self-insurance retention
features of $250,000 and $100,000 per incident, respectively.



11. 401(k)
Plan



The Company provides for the benefit of its
employees a voluntary retirement plan under Section 401(k) of the Internal Revenue Code. During 2002, the plan covered all eligible employees and provided for a matching contribution by the Company of 50% of each participants contribution up
to 4% of the individuals compensation as defined. The expenses related to this program were $375,000, $381,000 and $384,000 for fiscal years 2004, 2003 and 2002 respectively.



12. Equity Transactions



Preferred Stock



In connection with the Recapitalization transaction, the Company sold 28,000 shares of Series A Preferred Stock for total consideration of $28.0 million.
The holders of the Series A Preferred Stockholder (the Preferred Stockholder) is entitled to an annual cumulative dividend (which is payable at the option of the Company either in cash or in additional shares of Preferred Stock for the
first five years) and during which time the annual dividend is payable quarterly at the annual rate of 10.875 percent, compounded semi-annually. The Preferred Stockholder is entitled to elect 20 percent of the members of the Board of Directors of
the Company. During fiscal 2003 which completed the first five years under the agreement, this annual cumulative dividend converted to an accrued cash dividend and is payable at the annual rate of 15.875 percent, compounded semi-annually. As of
October 2, 2004, the cumulative unpaid dividend is $14.7 million.



The Preferred Stock may be redeemed at the option of the Company at any time at 101 percent of the per share price plus accumulated and unpaid dividends. The Company is required to redeem the Preferred Stock in three equal installments
terminating on the tenth anniversary of the date of issuance of the Preferred Shares. As such, the Company is accreting the Preferred Stock balance over the ten-year period to adjust the related liability in the amount of $401,000 and $398,000
recorded in 2004 and 2003, respectively.



In connection with
the issuance of the Preferred Stock, the original Preferred Stockholder received 1,264,980 warrants to purchase common stock at an exercise price of $0.01 per share expiring in June of 2007. Of the $28.0 million



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##### Table of Contents

Leslies Poolmart, Inc.



Notes to Consolidated Financial Statements



face value of the Preferred Stock, $3.1 million was assigned to the value of these Warrants and reflected as a discount on the Preferred Stock. This discount
is being accreted over the life of the Preferred Stock. The terms of the Warrant Agreement provide for a proportionate adjustment of the warrants for stock splits and stock dividends and for additional warrant shares to be issuable in the event any
of the 1997 NQ Options (as such term is defined below) or ISO Options or options under the 1998 Plan (as such term is define below) are exercised. Based on the number of options outstanding at October 2, 2004, an additional 287,429 warrants could be
granted if the options are exercised.



Common Stock



On March 23, 2001, the Company individually, and Lawrence Hayward,
President and CEO, Donald Anderson, Executive Vice President and CFO, and Green Equity Investors II, L.P., the (Purchasers) entered into two separate Stock Purchase Agreements, the (Agreements) with Brian P. McDermott,
(McDermott) the Companys former President and CEO (the McDermott Transactions). Pursuant to the Agreements, the Company repurchased 277,775 shares of the Companys voting common stock held by McDermott for an
aggregate purchase price of $499,995 and the other Purchasers acquired the remaining 554,985 shares of the Companys voting common stock held by McDermott for an aggregate purchase price of $998,973. Also pursuant to the Agreements, (i)
McDermotts existing options were cancelled and of no further effect; (ii) McDermott resigned from his position as a director on the Board of Directors of the Company; and (iii) the existing Consulting Agreement, dated as of December 31, 1999,
between McDermott and the Company was terminated.



As part of
the McDermott Transactions, the Company entered into separate loan agreements with each of Mr. Hayward and Mr. Anderson, pursuant to which the Company loaned $225,000 to each of Hayward and Anderson, respectively, thereby providing a portion of the
funds required for each of Anderson and Hayward to purchase the shares of the Companys common stock held by McDermott. Each loan, together with all accrued interest, will be due and payable to the Company in full, on the earlier of: 1) the
date which is 7 years from the date hereof; or 2) the termination of borrowers employment with the Company for any reason, other than a termination by the Company without Just Cause. The loan agreements are secured by a portion of the shares
purchased by each of Hayward and Anderson, pursuant to Pledge Agreements executed concurrently by each of Hayward and Anderson and are recorded as reductions in stockholders equity in the accompanying balance sheets.



On August 29, 2003, the Company, and GCP California Fund L.P., the
(Purchasers) entered into a Stock Purchase Agreements, (Agreement) with Robert D. Olsen, (Olsen) the Companys former Executive Vice President and CFO (the Olsen Transaction). Pursuant to the
Agreement, the Company repurchased 86,206 shares of the Companys voting common stock held by Olsen for an aggregate purchase price of $499,995 and the other Purchasers acquired the remaining 429,094 shares of the Companys voting common
stock held by Olsen for an aggregate purchase price of $2,488,745.



13.
Related Party Transactions



Leonard Green & Partners
(LGP), a firm that manages Green Equity Investors II (GEI), Hancock Park Associates (HPA) and Leslies are parties to a Management Agreement dated June 11, 1997. The Management Agreement provides that
Leslies will pay LGP an annual fee of $244,800 for ongoing management, consulting and financial services. In addition, subject to certain approval requirements, the Management Agreement provides that either LGP or HPA may provide financial
advisory or investment banking services for Leslies in connection with major financial transactions, and LGP or HPA will be paid a reasonable fee for such services. The Management Agreement terminates on the earlier of the tenth anniversary of
its execution or the date that LGP affiliates hold 25% or less of the shares of Leslies that they held on the date of the Management Agreement.



During the fiscal years ended October 2, 2004, September 27, 2003, and September 28, 2002, the Company paid management fees to LGP in the amount of
$245,000 for each of the three years represented.



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##### Table of Contents

Leslies Poolmart, Inc.



Notes to Consolidated Financial Statements



14. Stock Based Compensation Plans



During 1997, the Company adopted a non-qualified common stock option plan (the NQ Option Plan) and an incentive
common stock option plan (the ISO Option Plan) and reserved 417,995 shares and 1,369,730 shares, respectively, of Leslies common stock for issuance upon the exercise of options to be granted to certain employees of Leslies
thereunder. Options to purchase Leslies common stock have been granted at an exercise price of $1.00 per share for options granted under the NQ Option Plan (NQ Options) and $2.00 per share in the case of options granted under the
ISO Option Plan.



NQ Options are all vested. NQ Options have a
term of ten years and remain exercisable without regard to any termination of employment of the holder.



Under the ISO Plan, as amended, ISO Options vest in one-third increments on the first, second and third anniversaries of the original grant date. Options
intended to qualify as incentive stock options and options not intended to so qualify may be granted under the ISO Option Plan. Pursuant to law, options intended to qualify as incentive stock options are subject to
limitations on aggregate amounts granted and must be issued to any holder of 10% or more of the issuers outstanding common stock at 110% of fair market value. Vested ISO Options may be exercised for 90 days post termination of employment,
except in the case of the death of the option holder, in which case the vested portion may be exercised within twelve months from the date of termination. ISO Options have a term of ten years.



In November 1998, Leslies Board adopted its 1998 Incentive Stock Option
Plan (the 1998 Plan), and reserved 300,000 shares of nonvoting common stock for issuance thereunder. In January 2000, the Board approved an amendment to the Plan to increase the number of shares of nonvoting common stock issuable
thereunder to 500,000 shares in the aggregate.



On February 15,
2001, the Board of Directors approved a resolution to effectuate the cancellation and later reissuance of options outstanding under the Companys ISO Option Plan and the 1998 Plan. Under the program, 198,500 existing options were cancelled and
holders thereof were entitled to receive new Options on a date which would be at least 6 months and a day from the date of cancellation, at a price equal to the then market value of the Companys stock. The options cancelled had exercise prices
that were higher than the Boards view of the then current market price of the Companys stock and had impaired the ability of such options to fulfill their purpose.



On February 15, 2001, the Board of Directors approved a resolution to amend the Companys Certificate of Incorporation
to effectuate a 5 for 1 stock split whereby each outstanding share of the Companys common stock, par value $.001 per share, was converted into five shares of common stock. Following approval by the Companys stockholders, an amendment to
the Companys Articles of Incorporation was filed with the Delaware Secretary of State on February 22, 2001.



We account for stock-based compensation plans under APB Opinion No. 25, under which no compensation expense has been recognized in the accompanying
consolidated financial statements for stock-based employee awards with an exercise price equal to or greater than the fair value of the common stock on the date of grant. For purposes of SFAS No. 123, Accounting for Stock-Based Compensation,
the fair value of each option granted has been estimated at the date of the grant using the Black-Scholes option pricing model using the following weighted-average assumptions used for grants for each of the fiscal years ended 2004, 2003 and 2002:
risk free interest rate of 4.0%, expected volatility of 0%; expected lives of 7 years and no expected dividend yield. Based on these assumptions, the weighted average fair value of the options granted is $1.42 in 2004, $0.49 in 2003 and in 2002,
respectively.



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##### Table of Contents

Leslies Poolmart, Inc.



Notes to Consolidated Financial Statements



A summary of option activities for all plans is as follows:



|                                 |  |             |   |             |                   |             |        |           |   |                   |   |        |  |           |                   |  |   |     
|-------------------------------- |  | ----------- | - | ----------- | ----------------- | ----------- | ------ | --------- | - | ----------------- | - | ------ |  | --------- | ----------------- |  | - | ----
|                                 |  | Fiscal 2004 |   | Fiscal 2003 |                   | Fiscal 2002
|                                 |  | Shares      |   |             | Wt. Avg. Ex Price |             | Shares |           |   | Wt. Avg. Ex Price |   | Shares |  |           | Wt. Avg. Ex Price
|Outstanding at beginning of year |  | 1,456,060   |   |             | $                 | 1.97        |        | 1,841,330 |   |                   | $ | 1.77   |  | 1,683,830 |                   |  | $ | 1.75
|Granted                          |  | 190,200     |   |             |                   | 5.80        |        | 15,000    |   |                   |   | 2.00   |  | 220,000   |                   |  |   | 2.00
|Exercised                        |  |            |   |             |                   |            |        | (390,270  | ) |                   |   | 1.04   |  | (8,333    | )                 |  |   | 2.00
|Cancelled                        |  | (17,500     | ) |             |                   | 2.00        |        | (10,000   | ) |                   |   | 2.00   |  | (54,167   | )                 |  |   | 2.00
|                                 |  |             |   |             |                   |             |        |           |   |                   |   |        |  |           |                   |  |   |     
|Outstanding at end of year       |  | 1,628,760   |   |             | $                 | 2.42        |        | 1,456,060 |   |                   | $ | 1.97   |  | 1,841,330 |                   |  | $ | 1.77
|                                 |  |             |   |             |                   |             |        |           |   |                   |   |        |  |           |                   |  |   |     
|Exercisable at end of year       |  | 1,385,054   |   |             | $                 | 1.97        |        | 1,226,605 |   |                   | $ | 1.97   |  | 1,278,270 |                   |  | $ | 1.67
|                                 |  |             |   |             |                   |             |        |           |   |                   |   |        |  |           |                   |  |   |     



The following table
summarizes information about all stock options outstanding as of October 2, 2004:



|                       |      |                     |           |                                        |     |                           |   |                   |  |                            |  |   |     
|---------------------- | ---- | ------------------- | --------- | -------------------------------------- | --- | ------------------------- | - | ----------------- |  | -------------------------- |  | - | ----
|                       |      | Options Outstanding |           | Options Exercisable                   
|Range ofExercise Price |      | Number Outstanding  |           | WeightedAvg. RemainingContractual Life |     | WeighedAvg. ExercisePrice |   | NumberExercisable |  | WeightedAvg. ExercisePrice
|$                      | 1.00 |                     | 42,725    |                                        | 2.7 |                           | $ | 1.00              |  | 42,725                     |  | $ | 1.00
|$                      | 2.00 |                     | 1,395,835 |                                        | 7.0 |                           | $ | 2.00              |  | 1,342,329                  |  | $ | 2.00
|$                      | 5.80 |                     | 190,200   |                                        | 9.2 |                           | $ | 5.80              |  |                           |  | $ | 5.80
|                       |      |                     |           |                                        |     |                           |   |                   |  |                            |  |   |     
|                       |      |                     | 1,628,760 |                                        | 7.1 |                           | $ | 2.42              |  | 1,385,054                  |  | $ | 1.97
|                       |      |                     |           |                                        |     |                           |   |                   |  |                            |  |   |     



15. Supplemental Cash Flow
Disclosures



The Company paid interest charges of $7.0
million, $9.9 million, and $10.1 million in 2004, 2003 and 2002, respectively. The Company paid income taxes of $11.9 million, $5.6 million and $3.4 million in 2004, 2003 and 2002, respectively. The Preferred Stock dividends and the accretion of the
Warrants are excluded from the statement of cash flows as non-cash transactions.



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##### Table of Contents

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.



None



ITEM 9a. CONTROLS AND PROCEDURES



Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of the design and operation of our disclosure
controls and procedures, as defined in Rules 13a-15 (e) and 15d-15 (e) under the Securities Exchange Act of 1934, as amended, as of the end of the period covered by this report (the Evaluation Date). Based on this evaluation, our
principal executive officer and principal financial officer concluded as of the Evaluation date that our disclosure controls and procedures were effective such that the material information relating to Leslies including our consolidated
subsidiaries, required to be disclosed in our Securities and Exchange Commission (SEC) reports is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and was made known to our principal
executive officer and principal accounting officer during the period when this report was being prepared to allow timely decisions regarding required disclosure.



In addition, there were no significant changes in our internal controls or in other factors that could significantly affect
these controls subsequent to the Evaluation Date. We have not identified any significant deficiencies or material weaknesses in our internal controls, and therefore there were no corrective actions taken.



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##### Table of Contents

PART III



ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT



The directors and executive officers of the Company are as follows:



|                    |  |     |  |                                                               
|------------------- |  | --- |  | --------------------------------------------------------------
|Name                |  | Age |  | Positions                                                     
|Lawrence H. Hayward |  | 50  |  | Chairman of the Board, President and Chief Executive Officer  
|Donald J. Anderson  |  | 44  |  | Executive Vice President, Chief Financial Officer and Director
|Edward C. Agnew     |  | 65  |  | Director                                                      
|John M. Baumer      |  | 37  |  | Director                                                      
|John G. Danhakl.    |  | 48  |  | Director                                                      
|Michael J. Fourticq |  | 60  |  | Director                                                      
|Ted C. Nark         |  | 46  |  | Director                                                      
|Michael L. Hatch    |  | 51  |  | Senior Vice President, Merchandising and Marketing            
|Janet I. McDonald   |  | 46  |  | Vice President, Chief Information Officer                     
|Marvin D. Schutz    |  | 55  |  | Senior Vice President, Store Operations                       



Lawrence H. Hayward is
Chairman of the Board of Directors, President and Chief Executive Officer. He joined the Company in January 2000 as President and Chief Executive Officer and assumed the additional role of Chairman of the Board in September 2000. Most recently, Mr.
Hayward was the President of ABCO Desert Markets located in Phoenix, Arizona. From 1995 until 1999, he served as President and Chief Executive Officer of Carr Gottstein Foods Co., Alaskas largest food and drug retailer and wholesale provider.
From 1990 to 1995, Mr. Hayward held other senior level positions at Buttrey Food and Drug Co. From 1981 until 1990 he served in various corporate positions at American Stores Company headquartered in Salt Lake City, Utah.



Donald J. Anderson is Executive Vice President, Chief Financial Officer and
Director of the Company. He joined the Company in May 2000. Mr. Anderson has 28 years of experience in various retail industries. Most recently, Mr. Anderson was Senior Vice President and Chief Financial Officer of the Follett Higher Education
Group, located in Oakbrook, Illinois, the nations largest operator of University bookstores. From 1995 until 1999, he served as Senior Vice President and Chief Financial Officer of Carr Gottstein Foods Co., Alaskas largest food and drug
retailer and wholesale provider. From 1990 to 1995, Mr. Anderson held various senior level positions at Buttrey Food and Drug Co. From 1977 to 1990, he served in various managerial positions with American Stores Company.



Edward C. Agnew became a director in December 2002. He is a former retail
executive with over 36 years of retail experience. Mr. Agnew held various officer level assignments with Jewel Companies, Inc., Buttrey Food and Drug, Inc., and American Stores/Albertsons, Inc. Mr. Agnew began his career in 1963 with Jewel Food
& Drug Stores where he served in various capacities including General Manager of its Midwest Division. In 1987 Mr. Agnew was appointed President and Chief Executive Officer of Buttrey Food and Drug, Inc. In 1990, Mr. Agnew successfully led a
leveraged buyout of Buttrey Food and Drug Company and successfully completed an initial public offering of the Company in early 1993. In 1994 Mr. Agnew returned to American Stores, Inc., where he served as a Senior Vice President and member of the
Companys Executive Committee until his retirement in 1999.



Ted C. Nark became a director of the Company in November of 2004. He has served as the Chief Executive Officer of White Cap Industries, Inc. since April 2002. From 1998 until 2002, Mr. Nark was the Chief Executive Officer and Managing
Director of Corporate Express Australia, a publicly traded, business-to-business office products distribution company in Australia. From 1992 until 1998, Mr. Nark worked for Corporate Express, Inc., as Northwest Division President (from 1992 until
1995) and then as Group President (from 1995 until 1998).



John
M. Baumer became a director of the Company in November 2001. He has been an executive officer and equity owner of Leonard Green & Partners, L.P. (LGP), the firm that manages Green Equity Investors II (GEI), since 1999.
Mr. Baumer had previously been a Vice President at Donaldson, Lufkin & Jenrette Securities Corporation (DLJ), and had been with DLJ since 1995. Prior to joining DLJ, Mr. Baumer was at Fidelity Investments and Arthur Andersen. Mr.
Baumer is also a director of FTD, Inc., Intercontinental Art, Inc., Phoenix Scientific, Inc., Rand McNally & Co. and VCA Antech, Inc.



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##### Table of Contents

John G. Danhakl became a director of the Company in June 1997. He has been an executive officer and an
equity owner of LGP, the firm that manages GEI, since 1995. Mr. Danhakl had previously been a Managing Director at DLJ and had been with DLJ since 1990. Prior to joining DLJ, Mr. Danhakl was a Vice President at Drexel Burnham Lambert Incorporated.
Mr. Danhakl is also a director of Rite Aid Corporation, Arden Group, Inc., Big 5 Sporting Goods Corp., Communications & Power Industries, Inc., Liberty Group Operating, Inc., Petco Animal Supplies, Inc., Phoenix Scientific, Inc., MEMC Electronic
Materials, Inc., Diamond Triumph Auto Glass, Inc., and VCA Antech, Inc.



Michael J. Fourticq is a director of the Company. He also served as Chairman of the Board of Directors from May 1988 until January 2000. Between May 1988 and August 1992, he served as the Companys Chief Executive Officer. From 1995 to
2001, Mr. Fourticq had been the Chairman and Chief Executive Officer of Brown Jordan International, a leading manufacturer of outdoor and casual furniture products. Since 1985 he has been the sole general partner of Hancock Park Associates, which is
the general partner and affiliate of several investment partnerships. Mr. Fourticq is also on the Boards of Mikol Missile-Air, Brown Jordan International, Gordon Biersch, FHI dba Body Home Fitness, The Right Start, Classic Party Rentals, Stanton
International and Saleen, Inc.



Michael L. Hatch has been
Senior Vice President, Merchandising and Marketing of the Company since November 2000. Mr. Hatch has more than 29 years of experience in the retail industry. Most recently, Mr. Hatch was the President of ABCO Desert Markets, located in Phoenix,
Arizona. From 1996 to 1999 he was employed by Smiths Food and Drug where he held various positions including Senior Vice President and Southwest Manager and Vice President of Sales, Merchandising and Marketing. From 1970 to 1996, Mr. Hatch held
various senior management positions at Smittys Super Valu, Inc. located in Phoenix, Arizona, which later merged with Smiths Food and Drug.



Janet I. McDonald is Senior Vice President, Chief Information Officer of the Company. She joined the Company in August of 2000. Ms. McDonald has over 28
years of retail experience. Most recently Ms. McDonald owned and operated her own consulting business where she provided project management, management training, marketing, economic and other business services. From 1990 to 1992 she served as
Director Information Technology for Buttrey Food and Drug Company. From 1981 to1990 she held progressive levels of management responsibility in corporate technology for American Stores Company.



Marvin D. Schutz has been Senior Vice President, Store Operations, since July
1999. From May 1997 through June 1999, he was Vice President of Store Operations. From October 1994 through May 1997, he was Director of Store Operations, Eastern Division. From 1982 through 1993 he held several management positions in specialty
retail at Montgomery Ward as National Director of Operations and Training and Silo Inc. as Regional Sales Manager and Director of Operations.



All executive officers of the Company are chosen by the Board of Directors and serve at the Boards discretion except as provided in the employment
agreements described below under Executive Compensation  Employment Agreements. No family relationships exist between any of the officers or directors of the Company.



Leslies, GEI, the members of HPA Group, Occidental Petroleum Corporation and the holders of certain management options
are parties to a Stockholders Agreement. In the Stockholders Agreement, Michael Fourticq was given certain rights to be elected as a director of the Company.



The Board of Directors of Leslies Poolmart, Inc. does not have a financial expert within the meaning of the regulations of the
Securities and Exchange Commission, and we are not required to do so. We do not believe that we could recruit a financial expert without unwarranted expense and difficulty.



The Company has adopted a Code of Ethics and a copy may be obtained on written request to the Company attention: Corporate
Secretary.



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##### Table of Contents

ITEM 11. EXECUTIVE COMPENSATION



Summary
Compensation Table



The following summary compensation
table sets forth for the fiscal years ended October 2, 2004, September 27, 2003, and September 28, 2002, respectively, the compensation for services to the Company of the Chief Executive Officer and the four most highly compensated executive
officers of the Company as of October 2, 2004.



|                                                                                              |  |              |  |                         |  |                        |  |                       |  |                 |  |                       
|--------------------------------------------------------------------------------------------- |  | ------------ |  | ----------------------- |  | ---------------------- |  | --------------------- |  | --------------- |  | ----------------------
|                                                                                              |  |              |  | Fiscal YearCompensation |  | Long-Term Compensation |  | All OtherCompensation
|                                                                                              |  | Year         |  | Salary ($)              |  | Bonus ($)(1)           |  | Stock Options (#)(2)  |  | 401(k) ($)(3)   |  | Insurance/Other ($)(4)
|Lawrence H. Hayward Chairman of the Board, President and Chief Executive Officer and Director |  | 200420032002 |  | 459,327425,000417,308   |  | 463,118386,750365,925  |  | 60,000  30,000       |  | 4,0004,0003,400 |  | 46,18642,628180       
|                                                                                              |  |              |  |                         |  |                       
|Donald J. Anderson Executive Vice President, Chief Financial Officer and Director             |  | 200420032002 |  | 324,231300,000292,308   |  | 223,505195,000183,250  |  | 30,000  20,000       |  | 4,0004,0003,400 |  | 28,23724,148120       
|                                                                                              |  |              |  |                         |  |                       
|Michael L. Hatch Senior Vice President, Merchandising and Marketing                           |  | 200420032002 |  | 201,794189,000186,292   |  | 98,74185,99581,817     |  | 5,000  10,000        |  | 4,0003,7742,250 |  | 1,517250180           
|                                                                                              |  |              |  |                         |  |                       
|Janet I. McDonald Vice President, Chief Information Officer                                   |  | 200420032002 |  | 166,731147,473         |  | 78,85460,085          |  | 2,500               |  | 3,0002,786     |  | 1,417180             
|                                                                                              |  |              |  |                         |  |                       
|Marvin D. Schutz Senior Vice President, Store Operations                                      |  | 200420032002 |  | 190,995182,000179,779   |  | 93,38582,81078,792     |  | 1,250  10,000        |  | 4,0004,0003,400 |  | 1,766516451           

---

|(1) | Bonuses are attributed to the year earned, and are paid out after the conclusion of the
fiscal year. Bonuses were paid on a twelve-month basis for all of the fiscal years showing.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | All options were granted at their fair market value on the date of grant.
|--- | -------------------------------------------------------------------------

|(3) | Represents expected Company matching contributions to individuals 401(k) accounts.
|--- | -----------------------------------------------------------------------------------

|(4) | Insurance portion represents premiums paid by the Company for life insurance not generally
available to all Company employees.
|--- | ------------------------------------------------------------------------------------------------------------------------------



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##### Table of Contents

Option Plans



During 1997, the Company adopted a non-qualified common stock option plan (the NQ Option Plan) and an incentive common stock option plan (the
ISO Option Plan) and reserved 417,995 shares and 1,369,730 shares, respectively, of Leslies common stock for issuance upon the exercise of options to be granted to employees of Leslies thereunder. Options to purchase common
stock have been granted at an exercise price of $1.00 per share for options granted under the NQ Option Plan (NQ Options) and $2.00 and $5.80 per share in the case of options granted under the ISO Option Plan.



NQ Options are all vested. NQ Options have a term of ten years and remain
exercisable without regard to any termination of employment of the holder.



Under the ISO Plan, as amended, ISO Options vest in one-third increments on the first, second and third anniversaries of the original grant date. Options intended to qualify as incentive stock options and
options not intended to so qualify may be granted under the ISO Option Plan. Pursuant to law, options intended to qualify as incentive stock options are subject to limitations on aggregate amounts granted and must be issued to any holder
of 10% or more of the issuers outstanding common stock at 110% of fair market value. Vested ISO Options may be exercised for 90 days post termination of employment, except in the case of the death of the option holder, in which case the vested
portion may be exercised within twelve months from the date of termination. ISO Options have a term of ten years.



In November 1998, Leslies Board adopted its 1998 Incentive Stock Option Plan (the 1998 Plan), and reserved 300,000 shares of nonvoting
common stock for issuance thereunder. In January 2000, the Board approved an amendment to the Plan to increase the number of shares of nonvoting common stock issuable thereunder to 500,000 shares in the aggregate. Options to purchase Leslies
nonvoting common stock have been granted at an exercise price of the fair market value at the time of such grant.



On February 15, 2001, the Board of Directors approved a resolution to effectuate the cancellation and later reissuance of options outstanding under the
Companys ISO Option Plan and the 1998 Plan. Under the program, 198,500 existing options were cancelled and holders thereof were entitled to receive new Options on a date which would be at least 6 months and a day from the date of cancellation,
at a price equal to the then market value of the Companys stock. The options cancelled had exercise prices that were higher than the Boards view of the then current market price of the Companys stock and had impaired the ability of
such options to fulfill their purpose.



On February 15, 2001,
the Board of Directors approved a resolution to amend the Companys Certificate of Incorporation to effectuate a 5 for 1 stock split whereby each outstanding share of the Companys common stock, par value $.001 per share, was converted
into five shares of common stock. Following approval by the Companys stockholders, an amendment to the Companys Articles of Incorporation was filed with the Delaware Secretary of State on February 22, 2001.



43



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##### Table of Contents

Option Grants in 2004



The following table sets forth the stock options granted to the Chief Executive Officer and the other executive officers of the Company, during the twelve
months ended October 2, 2004, pursuant to the Companys ISO Option Plan, or 1998 Plan.



|                    |  |                   |  |                                                     |       |  |                        |      |                 |          |                                                                                                 |   |  |         |  |        
|------------------- |  | ----------------- |  | --------------------------------------------------- | ----- |  | ---------------------- | ---- | --------------- | -------- | ----------------------------------------------------------------------------------------------- | - |  | ------- |  | -------
|                    |  | Individual Grants |  |                                                     |       |  |                        |     
|                    |  | OptionsGranted(1) |  | % of TotalOptionsGranted toEmployees in Fiscal Year |       |  | Exercise or Base Price |      | Expiration Date |          | Potential Realizable Value at AssumedAnnual Rates of Stock PriceAppreciation for Option Term(2)
|                    |  |                   |  |                                                     | 0%($) |  | 5%($)                  |      | 10% ($)        
|Lawrence H. Hayward |  | 60,000            |  | 31.6                                                | %     |  | $                      | 5.80 |                 | 11/21/13 |                                                                                                 |  |  | 219,000 |  | 554,400
|Donald J. Anderson  |  | 30,000            |  | 15.8                                                | %     |  | $                      | 5.80 |                 | 11/21/13 |                                                                                                 |  |  | 109,500 |  | 277,200
|Michael L. Hatch    |  | 5,000             |  | 2.6                                                 | %     |  | $                      | 5.80 |                 | 10/1/13  |                                                                                                 |  |  | 18,250  |  | 46,200 
|Janet I. McDonald   |  | 2,500             |  | 1.3                                                 | %     |  | $                      | 5.80 |                 | 10/1/13  |                                                                                                 |  |  | 9,125   |  | 23,100 
|Marvin D. Schutz    |  | 1,250             |  | 0.7                                                 | %     |  | $                      | 5.80 |                 | 10/1/13  |                                                                                                 |  |  | 4,563   |  | 11,550 

---

|(1) | Granted pursuant to ISO Option Plan and 1998 Plan. Options granted vest over a three-year
period.
|--- | -------------------------------------------------------------------------------------------------

|(2) | Potential realizable value is based on an assumption that the stock price of the common stock
appreciates at the annual rate shown (compounded annually) from the date of grant until the end of the ten-year option term. These numbers are calculated based on requirements promulgated by the Securities and Exchange Commission and do not reflect
the Companys estimate of future stock price growth.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Aggregated Option Exercises in 2004 and Fiscal Year-End Option Value



The following table sets forth the stock option exercises by the named executive officers during 2004. In addition, the table indicates the total number and value of exercisable and non-exercisable options held by
each such officer as of October 2, 2004.



|                    |  |                               |  |                   |  |                                                 |  |                                                                 |  |               |           |  |   |       
|------------------- |  | ----------------------------- |  | ----------------- |  | ----------------------------------------------- |  | --------------------------------------------------------------- |  | ------------- | --------- |  | - | ------
|                    |  | SharesAcquired OnExercise (#) |  | Value Realized($) |  | Number of UnexercisedOptions at October 2, 2004 |  | Value of Unexercised In-the-Money Options at October 2, 2004(1)
|                    |  |                               |  | Exercisable       |  | Unexercisable                                   |  | Exercisable                                                     |  | Unexercisable
|Lawrence H. Hayward |  |                              |  |                  |  | 332,500                                         |  | 70,000                                                          |  | $             | 1,263,500 |  | $ | 38,000
|Donald J. Anderson  |  |                              |  |                  |  | 250,834                                         |  | 36,666                                                          |  |               | 953,169   |  |   | 25,331
|Michael L. Hatch    |  |                              |  |                  |  | 95,833                                          |  | 6,667                                                           |  |               | 364,165   |  |   | 6,335 
|Janet I. McDonald   |  |                              |  |                  |  | 58,333                                          |  | 6,667                                                           |  |               | 221,665   |  |   | 15,835
|Marvin D. Schutz    |  |                              |  |                  |  | 124,978                                         |  | 4,167                                                           |  |               | 482,811   |  |   | 12,035

---

|(1) | Potential unrealized value is (i) the fair market value at October 2, 2004 ($5.80 per share)
less the option exercise price times (ii) the number of shares.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------



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##### Table of Contents

Directors Compensation



Directors do not receive any compensation directly for their service on the Companys Board of Directors, with the
exception of Mr. Agnew and Mr. Nark, our outside directors, who receives $4,000 per each quarterly meeting. The Company issued 15,000 options to Mr. Agnew and Mr. Nark, respectively. Pursuant to a Management Agreement dated June 11, 1997,
Leslies pays LGP an annual fee for various management, consulting and financial planning services, including assistance in strategic planning, providing market and financial analysis, negotiating and structuring financing and exploring
expansion opportunities. The Management Agreement also provides that subject to specified approval requirements, either LGP or HPA may provide financial advisory or investment banking services for Leslies in connection with major financial
transactions, and LGP or HPA will be paid a reasonable fee for such services. During 2004, Leslies paid LGP the annual fee in the amount of $244,800 plus out-of-pocket expenses of approximately $43,670. John M. Baumer and John D. Danhakl are
members of the Companys Board of Directors and are executive officers and equity owners of LGP.



Employment Agreements



Lawrence Hayward and Donald Anderson each entered into employment agreements with Leslies, dated as of November 2003. Each of the employment agreements contains non-solicitation and confidentiality covenants and provides that the
executive is eligible to participate in Leslies benefit plans consistent with the benefits extended to the most senior of Leslies executives (including vacation, personal and sick leave, disability, medical and life insurance). Each of
the employment agreements also provides that the executive will serve at the will of the Companys Board of Directors. Each of the employment agreements expires in November 2008.



Mr. Haywards employment agreement provides for a minimum base salary of $425,000 annually, plus a minimum target bonus
of no less than $297,500. If Leslies terminates Mr. Haywards employment for any reason other than Just Cause (as defined in the Agreement), Mr. Hayward will receive a lump sum payment equal to 200% of the sum of his base salary, bonus
and certain costs for health and medical insurance coverage. The benefits are also payable upon a sale of substantially all of the business or assets of the Company or a consolidation, merger or change of control of the Company (a Change of
Control), if Mr. Hayward chooses to terminate his employment with the Company as a result of the Change in Control.



Mr. Andersons employment agreement provides for a minimum base salary of $300,000 annually, plus a minimum target bonus of no less than $150,000. If
Leslies terminates Mr. Andersons employment for any reason other than Just Cause (as defined in the Agreement), Mr. Anderson will receive a lump sum payment equal to 200% of the sum of his base salary, bonus and certain costs for health
and medical insurance coverage. The benefits are also payable upon a Change of Control (as defined above) if Mr. Anderson chooses to terminate his employment with the Company as the result of the Change in Control.



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##### Table of Contents

ITEM 12. PRINCIPAL SHAREHOLDERS AND STOCK OWNERSHIP OF MANAGEMENT



The following table sets forth information as of October 2, 2004 with respect to (i) all persons known by the Company to be the beneficial owner of more
than 5% of the Companys common stock; (ii) all executive officers of the Company; (iii) all directors; and (iv) all directors and executive officers as a group. The address for the directors and executive officers is in care of the Company.



|                                                            |  |                                                            |  |                                   |  
|----------------------------------------------------------- |  | ---------------------------------------------------------- |  | --------------------------------- | -
|Name and Address of Beneficial
Owner(1)                     |  | Amount and Nature ofBeneficial Ownership ofCommon Stock(2) |  | Percentage ofSharesOutstanding(2) |  
|Green Equity Investors II, L.P.(3)                          |  | 6,104,525                                                  |  | 60.7                              | %
|John M. Baumer(3,4,5)                                       |  | 7,633,169                                                  |  | 75.9                              |  
|John G. Danhakl(3,4,5)                                      |  | 7,633,169                                                  |  | 75.9                              |  
|GCP California Fund(5)                                      |  | 1,528,644                                                  |  | 15.2                              |  
|Michael J. Fourticq                                         |  | 400,000                                                    |  | 4.0                               |  
|Lawrence H. Hayward(6)                                      |  | 602,500                                                    |  | 6.0                               |  
|Donald J. Anderson(7)                                       |  | 510,834                                                    |  | 5.1                               |  
|Michael L. Hatch(8)                                         |  | 95,833                                                     |  | 1.0                               |  
|Janet I. McDonald(8)                                        |  | 58,333                                                     |  | 0.6                               |  
|Marvin D. Schutz(8)                                         |  | 124,978                                                    |  | 1.2                               |  
|All executive officers and directors as a group (8 persons) |  | 9,425,647                                                  |  | 93.7                              | %

---

|(1) | The address of Messrs. Fourticq, Hayward, Anderson, Hatch, McDonald, and Schutz is 3925 E.
Broadway Road, Suite 100, Phoenix, Arizona 85040. The address of Green Equity Investors II, L.P. (GEI), Green Capital Partners, L.P. (GCP) and Messrs. Baumer and Danhakl is 11111 Santa Monica Boulevard, Suite 2000, Los
Angeles, California 90025.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Computed based upon the total number of shares of Leslies common stock outstanding and
the number of shares of Leslies common stock underlying warrants and options of such person exercisable within 60 days. In accordance with Rule 13(d)-3 of the Exchange Act, any Leslies common stock which is subject to warrants or options
exercisable within 60 days is deemed to be outstanding for the purpose of computing the percentage of outstanding shares of Leslies common stock owned by the person holding such warrants or options, but is not deemed to be outstanding for the
purpose of computing the percentage of outstanding shares of Leslies common stock owned by any other person.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) | GEI is a Delaware limited partnership managed by LGP, which is an affiliate of the general
partner of GEI. Each of Messrs. Jonathan D. Sokoloff, Peter J. Nolan, John D. Danhakl, Jonathan A. Seiffer, John M. Baumer and James D. Halper, either directly (whether through ownership interest or position) or through one of more intermediaries,
may be deemed to control LGP and such general partner. LGP and such general partner may be deemed to control the voting and disposition of the shares of Leslies common stock owned by GEI. Accordingly, for certain purposes, Messrs. Sokoloff,
Nolan, Danhakl, Seiffer, Baumer and Halper may be deemed to be beneficial owners of the shares of Leslies common stock held by GEI.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(4) | Includes the shares beneficially owned by GEI and GCP, of which Messrs. Baumer and Danhakl
are associates.
|--- | ----------------------------------------------------------------------------------------------------------

|(5) | GCP is a Delaware limited partnership managed by an affiliate of LGP, which is an affiliate
of the general partner of GCP. Each of Messrs. Sokoloff, Nolan, Danhakl, Seiffer, Baumer and Halper either directly (whether through ownership interest or position) or through one of more intermediaries, may be deemed to control the affiliate of LGP
and such general partner. The affiliate of LGP and such general partner may be deemed to control the voting and disposition of the shares of Leslies common stock owned by GCP. Accordingly, for certain purposes, Messrs. Sokoloff, Nolan,
Danhakl, Seiffer, Baumer and Halper may be deemed to be beneficial owners of the shares of Leslies common stock held by GCP.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(6) | Includes 352,500 shares subject to options exercisable within 60 days and 250,000 shares of
Leslies common stock.
|--- | ------------------------------------------------------------------------------------------------------------------

|(7) | Includes 260,834 shares subject to options exercisable within 60 days and 250,000 shares of
Leslies common stock.
|--- | ------------------------------------------------------------------------------------------------------------------

|(8) | All such shares are subject to options exercisable within 60 days.
|--- | ------------------------------------------------------------------



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##### Table of Contents

Equity Compensation Plan Information



|                                                          |  |                                                                                              |  |                                                                              |      |                                                                                                                                           |          
|--------------------------------------------------------- |  | -------------------------------------------------------------------------------------------- |  | ---------------------------------------------------------------------------- | ---- | ----------------------------------------------------------------------------------------------------------------------------------------- | ---------
|                                                          |  | Number of securities to beissued upon exercise ofoutstanding
options,warrants and rights (a) |  | Weighted-average exerciseprice of outstandingoptions, warrants
andrights (b) |      | Number of securitiesremaining available forfuture issuance
underequity compensation plans(excluding securitiesreflected in column (a) (c)
|Equity compensation plans approved by securityholders     |  | 1,628,760                                                                                    |  | $                                                                            | 2.42 |                                                                                                                                           | 3,001,738
|Equity compensation plans not approved by securityholders |  |                                                                                             |  |                                                                              |     |                                                                                                                                           |         



ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS



Management Agreement



LGP, HPA and
Leslies are parties to a Management Agreement dated June 11, 1997. The Management Agreement provides that Leslies will pay LGP an annual fee of $244,800 for ongoing management, consulting and financial services. In addition, subject to
certain approval requirements, the Management Agreement provides that either, or both LGP and HPA may provide financial advisory or investment banking services for Leslies in connection with major financial transactions, and/or LGP and HPA
will be paid a reasonable fee for such services. The Management Agreement terminates on the earlier of the tenth anniversary of its execution or the date that LGP affiliates hold 25% or less of the shares of Leslies that they held on the date
of the Management Agreement.



Stockholders Agreement



Leslies, GEI, the members of the HPA Group, and the other holders of
Leslies securities (including options) are parties to a Stockholders Agreement (the Stockholders Agreement). The Stockholders Agreement provides the Company and certain Stockholders certain rights to repurchase a portion of the NQ
Options, NQ Shares and the Subscription Stock of certain other Stockholders upon their ceasing to provide services to the Company. The Stockholders Agreement generally restricts the transferability of securities of the Company
(Securities) held by certain of the Stockholders and establishes a right of first refusal, in the event certain Stockholders seek to transfer any of their Securities to a third party, in favor of some other Stockholders. In addition, GEI
has certain drag-along rights and if GEI desires to sell any Securities, other Stockholders have certain tag-along rights to participate in such sale. The Stockholders Agreement also grants demand registration rights to
certain Stockholders and piggyback registration rights for all Stockholders. In the Stockholders Agreement, Mr. Fourticq has certain rights to be elected as a director of the Company.



Stock Repurchase and Promissory Note Agreements



On March 23, 2001, the Company individually, and Lawrence Hayward, President and CEO, Donald Anderson, Executive Vice
President and CFO, and Green Equity Investors II, L.P., (the Purchasers) entered into two separate Stock Purchase Agreements, (the Agreements) with Brian P. McDermott, (McDermott) the Companys former
President and CEO (the McDermott Transactions). Pursuant to the Agreements, the Company repurchased 277,775 shares of the Companys voting common stock held by McDermott for an aggregate purchase price of $499,995 and the Purchasers
acquired the remaining 554,985 shares of the Companys voting common stock held by McDermott for an aggregate purchase price of $998,973. Also pursuant to the Agreements, (i) McDermotts existing options were cancelled and of no further
effect; (ii) McDermott resigned from his position as a director on the Board of Directors of the Company; and (iii) the Consulting Agreement, dated as of December 31, 1999, between McDermott and the Company was terminated.



As part of the McDermott Transactions, the Company entered into separate loan
agreements with each of Mr. Hayward and Mr. Anderson, pursuant to which the Company loaned $225,000 to each of Hayward and Anderson, respectively, thereby providing a portion of the funds required for each of Anderson and Hayward to purchase the
shares of the Companys common stock sold by McDermott. Each Loan, together with all accrued interest, will be due and payable to the Company in full, on



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##### Table of Contents

the earlier of: 1) the date which is 7thanniversary of the Note and 2) the termination of Borrowers employment with the Company for any reason, other than a termination by the Company without Just Cause, and is secured by a portion of the shares being purchased by
each of Hayward and Anderson, pursuant to Pledge Agreements executed concurrently by each of Hayward and Anderson.



ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES



|                      |  |   |        
|--------------------- |  | - | -------
|Audit Fees(1)         |  | $ | 193,000
|Audit-Related Fees(2) |  |   | 21,000 

---

|(1) | Includes fees and expenses related to the fiscal year audit and interim reviews, notwithstanding when the fees and expenses were billed or when the services
rendered.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Includes fees and expenses for services rendered from October through September of the fiscal year, notwithstanding when the fees and expenses were billed.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------



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##### Table of Contents

PART IV



ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K



(a)(1),(2) The following financial statements and financial statement schedules are included herewith and are filed as part of this annual report.



|                                                                                                                                
|--------------------------------------------------------------------------------------------------------------------------------
|Consolidated Balance SheetsOctober 2, 2004 and September 27, 2003                                                              
|                                                                                                                                
|Consolidated Statements of IncomeYears Ended October 2, 2004, September 27, 2003 and September 28, 2002                        
|                                                                                                                                
|Consolidated Statements of Stockholders Equity (Deficit)Years Ended October 2, 2004, September 27, 2003 and September 28, 2002
|                                                                                                                                
|Consolidated Statements of Cash Flows Years Ended October 2, 2004, September 27, 2003, and September 28, 2002                  
|                                                                                                                                
|Notes to Consolidated Financial Statements                                                                                      
|                                                                                                                                
|Report of Independent Registered Public Accounting Firm                                                                         



(a)(3) The following
exhibits set forth below are filed as part of this annual report or are incorporated herein by reference.



|               |  |                                                                                                                                                                                                                                                                                                                                                          
|-------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit Number |  | Description                                                                                                                                                                                                                                                                                                                                              
|3.1            |  | Restated Certificate of Incorporation filed with the Delaware Secretary of State on June 6, 1997*                                                                                                                                                                                                                                                        
|               | 
|3.2            |  | Certificate of Designation, Preferences and Rights of Exchangeable Cumulative Redeemable Preferred Stock, Series A filed with the Delaware Secretary of State on June 11,
1997*                                                                                                                                                                          
|               | 
|3.3            |  | Certificate of Amendment to Certificate of Designation filed with the Delaware Secretary of State on November 16, 1998*                                                                                                                                                                                                                                  
|               | 
|3.4            |  | Certificate of Amendment of Restated Certificate of Incorporation filed with the Delaware Secretary of State on December 26, 2000*                                                                                                                                                                                                                       
|               | 
|3.5            |  | Certificate of Amendment of Restated Certificate of Incorporation filed with the Delaware Secretary of State on February 22, 2001*                                                                                                                                                                                                                       
|               | 
|3.6            |  | Bylaws of the Company*                                                                                                                                                                                                                                                                                                                                   
|               | 
|4.1            |  | Indenture dated as of June 11, 1997 between the Company and U.S. Trust Company of California, N.A.*                                                                                                                                                                                                                                                      
|               | 
|4.2            |  | Indenture dated as of May 21, 2003 between the Company and the Bank of New York.*                                                                                                                                                                                                                                                                        
|               | 
|10.1           |  | Stockholders Agreement and Subscription Agreement dated as of June 11, 1997 among the Company and Green Equity Investors II, LP, Richard H. Hillman, Michael J. Fourticq, Greg Fourticq, Brian
P. McDermott, the Trustees of the McDermott Family Trust, Occidental Petroleum Corporation and the Stockholders identified on the signature pages thereto*
|               | 
|10.2           |  | NQ Option Plan and form of Agreement*                                                                                                                                                                                                                                                                                                                    
|               | 
|10.3           |  | ISO Option Plan and form of Agreements*                                                                                                                                                                                                                                                                                                                  
|               | 
|10.4           |  | Lease for Dallas Distribution Center*                                                                                                                                                                                                                                                                                                                    
|               | 
|10.5           |  | Lease for Ontario Distribution Center*                                                                                                                                                                                                                                                                                                                   
|               | 
|10.6           |  | Lease for Bridgeport Distribution Center*                                                                                                                                                                                                                                                                                                                
|               | 
|10.7           |  | Form of Directors and Officers Indemnification Agreement dated as of June 11, 1997 between the Company and certain members of management*                                                                                                                                                                                                              
|               | 
|10.8           |  | Management Agreement dated as of June 11, 1997 between the Company and Leonard Green & Partners, LP*                                                                                                                                                                                                                                                     
|               | 
|10.9           |  | 1998 Nonvoting Stock Option Plan*                                                                                                                                                                                                                                                                                                                        
|               | 
|10.10          |  | Amended and Restated Employment Agreement dated November 21, 2003 between the Company and Lawrence H. Hayward*                                                                                                                                                                                                                                           
|               | 
|10.11          |  | Amended and Restated Employment Agreement dated November 21, 2003 between the Company and Donald J. Anderson*                                                                                                                                                                                                                                            
|               | 
|10.12          |  | Loan and Security Agreement June 22, 2000 among the Company and Foothill Capital Corporation*                                                                                                                                                                                                                                                            
|               | 
|10.13          |  | Amendment Number One to Loan and Security Agreement*                                                                                                                                                                                                                                                                                                     
|               | 
|10.14          |  | Secured, Non-recourse Promissory Note and Pledge Agreement - Lawrence H. Hayward*                                                                                                                                                                                                                                                                        
|               | 
|10.15          |  | Secured, Non-recourse Promissory Note and Pledge Agreement - Donald J. Anderson*                                                                                                                                                                                                                                                                         
|               | 
|21.1           |  | Subsidiaries*                                                                                                                                                                                                                                                                                                                                            



49



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##### Table of Contents

|               |  |                                                            
|-------------- |  | -----------------------------------------------------------
|Exhibit Number |  | Description                                                
|24.1           |  | Power of Attorney (included on signature page)             
|               | 
|31.1           |  | Certification of Lawrence H. Hayward                       
|               | 
|31.2           |  | Certification of Donald J. Anderson                        
|               | 
|32.1           |  | Certification of Lawrence H. Hayward and Donald J. Anderson

---

|* | Previously filed
|- | ----------------



| | (b) | Reports on Form 8-K
| | --- | -------------------



None.



COPIES OF THIS FORM 10-K MAY BE OBTAINED WITHOUT CHARGE UPON WRITTEN

REQUEST
TO THE COMPANY AT THE FOLLOWING ADDRESS:



LESLIES
POOLMART, INC.

3925 E. BROADWAY RD., SUITE #100

PHOENIX, ARIZONA 85040



ATTN: CORPORATE SECRETARY



50



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##### Table of Contents

SIGNATURES



Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of Phoenix, State of Arizona, on December 15, 2004.



LESLIES POOLMART, INC. (Registrant)By:

/S/ DONALD J. ANDERSONDonald J. AndersonChief Financial Officer




KNOW ALL MEN BY
THESE PRESENTS, that each person whose signature appears below hereby constitutes and appoints Lawrence H. Hayward, Donald J. Anderson, and each of them, his true and lawful attorney-or attorneys-in-fact and agent or agents, with full power of
substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign any and all amendments (including pre-or post-effective amendments) to this Report on Form 10-K, and to file the same, with all exhibits
thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agent, and each of them, full power and authority to do and perform each and every act and thing requisite
and necessary to be done, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or any of them, or their substitute or substitutes, may lawfully do or
cause to be done by virtue hereof.



Pursuant to the
requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant in the capacities and on the date indicated.



|                        |  |                                                                           |  |                  
|----------------------- |  | ------------------------------------------------------------------------- |  | -----------------
|Signature               |  | Capacity                                                                  |  | Date             
|/S/ LAWRENCE H. HAYWARD |  | Chairman of the Board of Directors, Chief Executive Officer and President |  | December 15, 2004
|Lawrence H. Hayward     |  |                                                                           | 
|                        |  |                                                                          
|/S/ EDWARD C. AGNEW     |  | Director                                                                  |  | December 15, 2004
|Edward C. Agnew         |  |                                                                           |  |                  
|                        |  |                                                                          
|/S/ JOHN M. BAUMER      |  | Director                                                                  |  | December 15, 2004
|John M. Baumer          |  |                                                                           |  |                  
|                        |  |                                                                          
|/s/ JOHN G. DANHAKL     |  | Director                                                                  |  | December 15, 2004
|John G. Danhakl         |  |                                                                           |  |                  
|                        |  |                                                                          
|/s/ MICHAEL J. FOURTICQ |  | Director                                                                  |  | December 15, 2004
|Michael J. Fourticq     |  |                                                                           |  |                  
|                        |  |                                                                          
|/S/ DONALD J. ANDERSON  |  | Chief Financial Officer, Director and Principal Accounting Officer        |  | December 15, 2004
|Donald J. Anderson      |  |                                                                           | 



51